Why USA hates China products

Five construction sites in world trade: is China replacing the West?

The pandemic made one thing clear this year: how closely connected the whole world has become. It was once considered a comparison for the unimportant when a sack of rice falls over in China. What happens at a meat market in a Chinese province makes you prick up your ears these days. With the spread of Covid-19, one country after another closed its borders and sent the economy into an artificial deep sleep. Instead of growing significantly, as originally expected, world trade will shrink by around seven percent this year.

Divided worlds

Behind the average value hides a development that is decisive for the future of trade policy. According to the United Nations trade organization UNCTAD, exports to the EU and the United States are likely to have shrunk by around ten percent each in the past quarter alone. For China, however, the experts calculate an export increase of over ten percent.

With the approval of a vaccination, economists expect a recovery in world trade. ING-Bank experts estimate, however, that the pre-crisis level will not be reached again until the beginning of 2022. The big question is: will the weight of trade continue to shift to Asia by then, or will the USA and Europe be catching up to restore the weight ratios to which they are accustomed?

Protectionism on the rise

The past two decades have led to a creeping increase in protectionism, despite political assurances to the contrary, as trade expert Simon Evenett notes. As is so often the case, US President Donald Trump has given a trend a boost. The fact that the sharp rhetoric of the trade war with the Republican is leaving the White House is little consolation for all those companies that are still affected by punitive tariffs. According to his own statements, the future Commander in Chief does not intend to disarm the trade weapons for the time being.

In the coming years it will rather become clear whether the USA, together with the EU, Great Britain and other like-minded people, will create a set of rules for open world trade, which great powers like China and India will join. Alternatively, there is a risk of breaking up into several trading blocs, as has progressed in recent years, and even more complicated rules for the movement of goods - experts like to speak of a spaghetti bowl in customs regulations.

A look at the most important construction sites in world trade shows the problems, but also the opportunities for the future.

For the European Union, 2021 will be a tightrope walk when it comes to economic relations with other trading blocs. Above all, it is important in Brussels to cement the relationship with the most important trading partner, the USA. Under the outgoing President Donald Trump, the mood was poisoned thanks to various punitive tariffs and threats.

But even if observers expect that the tone will improve under the new US President Joe Biden, different interests must be balanced. The EU has announced a sharper pace with the big tech monopolies, and a digital tax is being considered in Brussels as an EU source of income. The main affected would be the US giants such as Alphabet, Amazon, Apple or Facebook. At the same time, Brussels is currently finalizing an investment agreement with Beijing that is being viewed critically in Washington.

Furthermore, the new Brexit trade agreement will be subjected to a practical test. Customs controls will hinder the movement of goods in the future, the status of Northern Ireland is explosive and there are still no regulations for the financial sector.

  • Asia now has the world's largest trading zone

The regional, comprehensive business partnership RCEP includes 15 Asian economies. Except for India, all of the major countries in the region are included. The world's largest trading bloc comprises almost a third of the world's population and economic output.

The bloc will play an important role in the future of world trade, and not just because of its size. The agreement, which has existed since 2020, affects two important trade relations that were previously not covered by any free trade area: Japan and South Korea and most importantly Japan and China.

Especially in the western perception, the bloc is the new trade zone of the People's Republic. Although some democracies are involved, the set of rules bears the signature of countries with a penchant for state-owned corporations and little control in areas such as monopolies, consumer and human rights.

The organization of the RCEP is also important. With its own secretariat and regular meetings of government members, a forum should emerge that could shape the future of Asian trade relations.

Donald Trump broke a lot of china with sharp rhetoric and punitive tariffs. The outgoing US President may have recognized the signs of the times on one point. At least that's the obvious thing to do if his Democratic successor Joe Biden wants to take a similar line: It's about standing up to China. Unlike Trump, Biden wants to forge a broad coalition to convince Beijing of the advantages of a rule-based, liberalized world trade system.

However, it is unlikely that a comprehensive agreement with the EU will be revived as a flagship project. After all, the first attempt, the TTIP agreement, had been put on hold by both sides. A new attempt to take over the leadership role in the transpacific trade bloc has also become more difficult for the USA in view of the new balance of power.

For Washington there is another chance in 2021: As the host of the three-year meeting of all American states, Washington could bring long-cherished plans for a trade zone for the entire hemisphere to the table.

  • Africa starts free trade area for the whole continent

A positive impetus for world trade should soon come from Africa: At the turn of the year, the AfCFTA free trade area, which covers almost the entire continent, will be launched. The start had been postponed by six months due to the corona pandemic. According to estimates by the World Bank, the free trade area could lift around 30 million people from poverty by 2035, increase the continent's income by over 375 billion euros and exports within Africa by 81 percent.

Trade within the continent is currently still hampered by high tariffs and bureaucratic hurdles. With all African countries, AfCFTA will encompass a market of 1.2 billion people and be one of the world's largest free trade areas. So far, almost all African countries have signed the agreement, and around three dozen have ratified it.

According to the World Bank, the planned free trade zone is particularly important because of the Corona crisis. Accordingly, AfCFTA could cushion the negative consequences of the pandemic on economic growth. However, experts warn that the practical test remains the biggest hurdle.

  • Worldwide struggle for common rules

The state of the World Trade Organization (WTO) speaks volumes. The executive chair has been empty since August, the appellate court has been lacking the necessary staff for a year - both due to the US blockade - and the international community has been stuck in the current Doha round of negotiations for a decade.

But most recently, Brexit has reminded people of the importance of the international trade organization. If states are not part of a trading bloc, the rules of the WTO apply. The most important thing: tariffs must be the same for all trading partners. With the increasing regionalization of trading blocs, which also allow mutual preferential treatment of the members in accordance with the WTO, the globally valid system of rules is becoming less important.

The election of Joe Biden as US President raised hope at the WTO. His predecessor blocked the appointment of the judges mentioned. The Democrat has also announced that it will address US trade interests at the multilateral level. It remains to be seen whether this will mean a strong boost for the rusty WTO in practice. (Leopold Stefan, December 29, 2020)