“Get used to it” is the message from Goldman Sachs when it comes to the collapse in global trade…
What if the last 30 years of exuberant world trade growth was the ‘outlier’ and we are now reverting to the pre-Greenspan normal?
As Goldman’s Goohoon Kwon explains, a low trade beta may be normal:
Finally, another explanation for the trade slowdown is that it simply represents a return to normal.
Historical trade data show that the global trade beta was slightly higher than 1 in the early 1950s before rising gradually due to a series of extraordinary events. In the 1960s-1980s, it rose to around 1.5, boosted by multilateral efforts for trade reforms, which reduced average tariffs from 35% in 1947 to 6.4% at the start of the of the Uruguay Round (1986-94) of global trade negotiations. Thereafter, the breakup of the Soviet Union enabled global trade to expand rapidly in the 1990s, and the WTO entry of China in 2001 helped sustain the trade beta at around 2 in the 2000s.
There is therefore an argument that a series of largely one-off factors drove the trade beta to unusually high levels.
And as Goldman warns, there is limited upside to global trade from here…
Given these structural forces, the outlook for global trade remains weak in our view, though it might rebound somewhat in the short term. Asian trade is likely to recover moderately in coming years, helped by the eventual dissipation of capacity overhangs in China and reductions in internal imbalances in the economy. And further trade liberalization, including in services, presents upside for global trade. However, the restructuring of overcapacity sectors seems to be proceeding slowly so far in Asia, as reflected in low and still-falling capacity utilization in China and Korea. Moreover, the current political backdrops in the major economies suggest that another major push for trade liberalization might be off the table, at least for now.
So don’t blame Trump… this is systemic.
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