World Trade Falls Sharply As Trade Wars Take Their Toll

Following a dip to just 1.8% in November 2018, world trade fell further to 1.7% in December. Annual figures showed just a 3.3% increase in global trade over the year. This is down sharply from the 4.7% registered in 2017.

Trade War Uncertainty Squashes Trade Flows

The report attributes blame for the decline to a large drop in imports and exports from China, as trade war uncertainty ballooned. Furthermore, while we don’t yet have import/export data for the US over December, October and November figures were down significantly on the September reading. This likely reflects the negative impact of US trade tariffs.

The impact was most notable in China. December import figures fell 13% year on year with exports down 5.6%. Global trade was heavily disrupted late last year as the US made an effort to restore its trading relationship. These efforts had the effect of muddling cross-border production lines and supply chains which have been in place for decades.

January Data Not Looking Good

Although US data for December has been delayed due to the government shutdown, the first survey data sets for January have not been encouraging.

The IHS Markit manufacturing survey, which surveys 13,500 companies across 40 countries, showed that orders for new export work suffered their greatest fall since 2016. They were also down for a fifth consecutive month

In light of these recent figures, there is even more of an emphasis being placed on the ongoing US/China trade talks. For now, president Trump has extended the original March 1st deadline placed on the talks. This means that the increase in tariffs on $200 billion of Chinese goods will also be postponed.

If the talks can lead to a proper deal and a dismantling of the current tariffs in place, this would be a huge boost for world trade over 2019. However, if talks fail and Trump reverts to increasing current tariffs, this would push word trade further off the cliff. This is something the president is surely aware of during these negotiations.

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