While ‘trade war’ rhetoric picks up the world trade cycle remains in decent shape

March 19, 2018

The tariffs authorized on steel and aluminum imports by the US administration has brought the prospect of trade wars back into the limelight. World leaders have been warned that a Donald Trump-inspired trade war could trash the global economic recovery with protectionist policies.

Christine Lagarde, chief of the International Monetary Fund (IMF), issued the warning ahead of the G20 meeting of global politicians and bankers in Buenos Aires, in the wake of the US decision to impose tariffs on steel and aluminium imports, and the EU’s threats to retaliate. Politicians must “resolve trade disagreements without resort to exceptional measures”, IMF chief Christine Lagarde warned, to avoid “trade wars which not only hurt global growth, but they are also unwinnable”. The global expansion is gaining strength from the pickup in international trade, and it should not be put at risk by the adoption of inward-looking policies, the IMF report said.

World Trade Organization (WTO) Director General Roberto Azevedo expressed concern at US President Donald Trump’s plan, an extremely rare intervention into a WTO member’s trade policy: “The WTO is clearly concerned at the announcement of US plans for tariffs on steel and aluminum. The potential for escalation is real, as we have seen from the initial responses of others,” he said in a brief statement issued by the WTO, headquartered in Geneva.

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Monthly changes: Seasonally adjusted gKNi World Trade Indicator (gKNi WTI) and overall exports and imports collected by WTO (not seasonally adjusted). Update: 19 March 2018

So far, the update of the gKNi World Trade Indicator shows a very decent growth for January and February. The gKNi World Trade Indicator (gKNI WTI), is operated by a subsidiary of the Swiss-based logistics giant Kuehne+Nagel and accounts for about 55% of global trade from countries that cover roughly 70% of global GDP. The measure comprises proprietary logistics feeds and other externally sourced data and offers a daily assessment of world trade dynamics (seasonally adjusted and measured in nominal USD terms).

“There are still solid signals for the world trade cycle and the positive streak we have witnessed without any meaningful reversals is becoming quite long. As things stand now it looks like global activity remains on a solid footing”, writes Birgir Haraldsson, analyst and co-founder of New York-based macro strategy firm Nightberg. Haraldsson closely monitors the gKNi World Trade Indicator in order to detect changes of dynamics, inflection points, and early warning signals.

“Hence, there is nothing here that suggests a stress to the current trade saga with the year-on-year (nominal) growth results remaining elevated at about 15%”, comments Nightberg. “Whether any shifts come about in those projections as the year progresses remains to be seen.”