German Exports

World trade makes a comeback

CMA CGM Marco Polo
Gathering steam. Source: action press

In a welcome surprise for German exporters, global trade has far outpaced expectations this year, partly because US President Donald Trump has yet to impose the import tariffs he has been threatening.

The World Trade Organization expects trade to expand by up to 3.9 percent this year, up from the 2.4 percent it had predicted at the start of the year. The International Monetary Fund is even more optimistic, forecasting trade growth of 4.2 percent in 2017 and 4 percent next year.

“One of the reasons is likely to be that the worst fears, for example new import tariffs by the US, have so far failed to materialize,” said Holger Bingmann, president of the BGA foreign trade association.

Despite Mr. Trump’s vocal promises to protect US manufacturers with new tariffs, US imports and exports are up this year from 2016. In fact, the trend towards more protectionism in the Group of 20 leading industrial and emerging countries has been halted, with the WTO registering the lowest increase in new trade barriers since 2008.

Europe’s recovery is a further factor boosting trade. That benefits German exporters because the EU is their biggest market.

It’s great news for German automakers like VW, Daimler and BMW and industrial group Siemens, chemicals firms BASF and Bayer and the wealth of small and medium-sized makers of specialist machinery required by manufacturers all over the world.

The growth is borne out by the closely-watched Container Throughput Index compiled by the RWI-Leibniz economic institute and the ISL institute of shipping economics. The index rose sharply to 129.7 in September and has increased six points since the start of the year.

“The last time such a strong increase was recorded was in 2010,” said RWI analyst Roland Döhrn. The index is an important leading indicator because the bulk of international trade is transported by ship.

There are a number of reasons why world trade is outpacing global economic growth for the first time in years. They include buoyant economic growth in the US and accelerating trade flows in Asia.

Europe’s recovery is a further factor, and that’s particularly important to Germany given that its most important export markets are on its doorstep. “A major driving force is the increase in intra-European trade concurrent with the pan-European economic recovery,” Christian Kastrop, a senior economist at the Organization for Economic Co-operation and Development, told Handelsblatt.

The IMF has raised its forecast for economic growth in France, the second-biggest importer of German goods last year after the US, by 0.2 points to 1.6 percent. Its upward revisions have been even bigger for Italy and Spain.

It expects growth with China, Germany’s largest trading partner last year with aggregate exports and imports totaling €170.2 billion ($198 billion), to reach 6.8 percent this year.

Brazil and Russia, meanwhile, are on the up again after tumbling into recession last year due to weak oil and raw materials prices. Even Japan’s chronically stagnant economy is expected to deliver growth of 1.5 percent.

Strong growth in the semiconductor market this year is another positive sign because chips are a key component for electric goods. Asia, the world’s electronics factory, is riding a wave of trade growth thanks to global digital change.

In further good news for German manufacturers, economists have detected a shift in the pattern of global economic growth from consumer spending to investment.

“Investment activity has expanded significantly since 2016,” Germany’s five leading economic institutes wrote in a recent study. They pointed out that the weakness of trade in recent years was partly explained by investment being put on hold in the wake of the 2008-2009 financial crisis.

“In the long term we’re more on the pessimistic side with regard to world trade. The uncertainties and a further increase in protectionism are all still there.”

Holger Bingmann, President of the BGA foreign trade association

So there’s an abundance of factors driving world trade. But the WTO doesn’t expect global trade growth to maintain its pace next year. “Major risks remain for the world economy and could very easily undermine the recovery of trade,” WTO Director-General Roberto Azevedo told Handelsblatt. He said those risks included a resumption of protectionism, growing geopolitical tensions and damages caused by natural disasters.

Mr. Bingmann, the boss of Germany’s BGA foreign trade association, shares that skepticism.

“In the long term we’re more on the pessimistic side with regard to world trade,” he said. “The uncertainties and a further increase in protectionism are all still there.”

Those uncertainties include Brexit. The sluggish pace of negotiations so far on Britain’s exit from the EU in 2019 has fueled fears of a disruption to trade that could hit Germany hard. In 2016, Germany exported goods worth €85.9 billion to Britain, its third-biggest export market behind the US and France.

Donata Riedel covers economic policy for Handelsblatt. Jan Dirk Herbermann is a correspondent for Handelsblatt in Switzerland. To contact the authors: riedel@handelsblatt.com, herbermann@handelsblatt.com 

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