Economic momentum boosts world trade despite protectionist rhetoric

Despite a decline of -0.6% MoM in February, world trade has returned to growth in recent months. World trade volumes over the December to February period are 2.7% higher than during the three months before, which is the strongest growth in the 3-month moving average since 2010.

Strength in the global economy is boosting world trade growth. Advanced economies are experiencing robust growth at the moment and Latin American countries, having weighed heavily on import growth in 2016, are now showing cautious signs of recovery. In addition, growth in China has been accelerating in the first quarter of 2017, adding to the upturn in the global economic cycle.

Although cyclical factors may increase trade growth in the short-term, the longer-term outlook is still significantly bleaker. Chinese industry is still shifting more towards domestic suppliers to support imported intermediates, which limits the potential of growth in world trade. Increased trade barriers between some of the larger global economies remain a significant threat to trade growth as well.

Plans for higher US trade barriers remain important to the Trump administration, although the question remains how radically the trade relationship with major trading partners will change. The increased tariffs on Canadian softwood that were announced yesterday are a signal to the rest of the world that the US means business. In Europe, negotiations about the new EU-UK trade relations are yet to begin, but a “hard Brexit” would mean significantly higher barriers to trade in Europe. All in all, it seems like growth in trade volumes is currently enjoying just a temporary revival, as the risk of higher trade barriers looms large.

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