The rise of populist currents shakes up global trade
For decades, global trade has moved in only one direction: towards constant growth. But, due in no small part to faltering economic activity, global trade experienced a significant contraction in 2015, and probably also in 2016.
For decades, global trade has moved in only one direction: towards constant growth. The volume of goods traded is now about five times larger than at the start of the 1990s. But, due in no small part to faltering economic activity, global trade experienced a significant contraction in 2015, and probably also in 2016. A rapid recovery is now rather unlikely, as we are currently seeing a strong increase in protectionist trends in western countries – such as the threat by new US President Donald Trump to introduce import tariffs. If trading partners were to hit back, the impact on global trade and economies across the world would be immense. These strains would also affect international marine insurance, where market volumes have in any case been declining steadily in recent years.
From 2002 until the financial crisis in 2008, global trade saw strong growth averaging 14% per year. The main drivers were countries in Asia, particularly China. Globalisation made great progress during these years. In 2009, international trade in goods collapsed as a result of the worldwide recession. Two years of recovery followed, but progress has stagnated since 2011. In 2015, and probably to a lesser extent also in 2016, trade has contracted once again. The International Monetary Fund (IMF) stated in 2016 that three quarters of the slowdown since 2012 has been due to the weakened global economy. Lower investment means that fewer commodities and less machinery are being imported from other countries. Over the last three years, China’s imports have been much lower than during its boom period. This has had a strongly negative impact on the economies of other exporting countries.
Last year, the IMF had already thrown a spotlight on protectionist measures being a cause of negative trade growth. This includes, in particular, customs tariffs and export subsidies as tariff-based barriers, and quotas as non-tariff barriers. Since 2009, it has been possible to observe a more-or-less continuous increase in protectionist measures. Of particular note is the rapid upsurge since 2012, when the upward trend in global trading volumes stalled. Many free trade agreements are now in danger – either because they are being cancelled (TPP, for example) or are mired in intractable negotiations (such as TTIP). The USA’s cancellation of the TPP, and perhaps even its withdrawal from the North American Free Trade Agreement (NAFTA), could have dramatic consequences for the other trading partners involved. If existing or planned free trade agreements are scrapped, protectionism would reach alarming levels. The progress made with free trade agreements over the past few decades has brought advantages for almost all countries. The international division of labour and cross-border production processes have become the core of the modern global economic order. There is no denying that globalisation is not a winning situation for everyone, but more protectionism is not the answer. Developing economies are often the losers when it comes to protectionist measures. They justifiably expect us to develop fair, balanced free trade agreements.
Globalisation seems to be in crisis, and this is also affecting marine insurance. Parallel to developments in global trading volumes, premium income has also been falling in all segments since 2012. Even when adjusted for currency translation effects from the rise in the US dollar, premium volume is stagnant. In 2015, global premiums of around US$ 30bn had once again dipped back down to 2010 levels. After two poor years for global trade, economic conditions would now normally point to a recovery. Stronger growth in the USA, a probable end to the recessions in Russia and Brazil, and a recovery in other commodity-exporting countries due to higher prices should accelerate global trade in 2017 and beyond. But these benefits could be counteracted by the tendency towards greater protectionism. The USA’s current trade policy and its withdrawal from the TPP and the effects of Brexit have the potential to significantly dampen international trade and slow down globalisation. The European Parliament has now approved the trade agreement between Canada and the EU, so that parts of the agreement may soon come into force, subject to approval by individual Member States. It remains to be seen which of these effects will prevail. But at the moment, we should not rely on shrunken trading volumes being just a short-term blip. Marine insurers face similar expectations, and the industry should not bank on a significant increase in premium volume for the current year. Free trade and the global exchange of goods form the basis for growth and prosperity in the global economy. Abandoning the efforts to work towards fairer globalisation, and instead turning towards nationalistic isolation, would harm everyone in industrial countries, emerging markets and developing economies.