De-Globalization: Does That Word Mean What You Think it Means? Presentation to 35 Annual Monetary & Trade Conference Mykyta Vesselovsky, Ph.D. Office of the Chief Economist Global Affairs Canada April 21, 2017
Real imports have seen a marked slowdown Monthly World Merchandise Imports, Volume Index Index (2010=100) 120 Compound average annual growth of 1.8% from 2011 to 2016 100 Compound average annual growth of 5.0% from 2000 to 2008 80 China enters WTO Global Financial Crisis 60 Jan-2000 Jan-2001 Jan-2002 Jan-2003 Jan-2004 Jan-2005 Jan-2006 Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 Data: CPB World Trade Monitor 2
Slowdown even more pronounced in advanced economies Index (2010 = 100) 140 120 Volume of Exports in Advanced and Emerging Economies Emerging Markets: Compound Average Annual Growth of 2.2% from 2011 to 2016 100 80 60 Advanced Economies: Compound Average Annual Growth of 1.5% from 2011 to 2016 40 Jan-2000 Jan-2001 Jan-2002 Jan-2003 Jan-2004 Jan-2005 Jan-2006 Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 Data: CPB World Trade Monitor 3
Poor performance in the EU and Japan are a drag on global trade, which should (hopefully) be cyclical phenomena Index (2000 = 100) 170 Volume of Imports in EU, Japan and U.S. 160 150 140 130 120 110 100 90 Jan-2000 Jan-2001 Jan-2002 Jan-2003 Jan-2004 Jan-2005 Jan-2006 Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 Data: CPB World Trade Monitor 4
Changes in the composition of global demand could also be playing a role, but in the case of China is this cyclical or the new norm? Changes in the composition of demand Different components of demand have different impacts on trade. In general, investment spending is the most importintensive component, followed by consumption, with government spending being the least import-intensive. During the post-crisis recovery, the investment component of aggregate demand has been fairly weak, while government spending has been relatively stronger. Percent 35 30 25 20 15 10 5 0-5 -10-15 Real Fixed Investment Growth (Annualized Q/Q percent change) Forecast 2005-Q1 2006-Q1 2007-Q1 2008-Q1 2009-Q1 2010-Q1 2011-Q1 2012-Q1 2013-Q1 2014-Q1 2015-Q1 2016-Q1 2017-Q1 2018-Q1 2019-Q1 Data: IHS Global Insight 5
Trade elasticity, the growth of trade in relation to GDP, has been decelerating since 2000 Percent 2.4 Elasticity of World Merchandise Trade Volume with Respect to World GDP at Market Exchange Rates (Over 10-year periods) 2.2 2.0 1.8 1.6 1.4 1.2 1.0 1980-1990 1985-1995 1990-2000 1995-2005 2000-2010 2004-2014 Source: WTO Data: WTO International Trade Statistics for trade, IMF World Economic Outlook database for GDP at market exchange rates Note: Elasticities calculated by regressing log of world merchandise trade volume on log of world GDP at market exchange rates over 10 years. 6
FDI, an important means for globalizing services has been flat in recent years Although global inward FDI flows rebounded strongly in the past year, it has been on a flat trend since the recession US$ Billions Global Inward FDI Flows 2000 1600 1200 1,076 1,359 950 1,402 1,902 1,498 1,181 1,389 1,567 1,511 1,427 1,277 1,762 1,520 800 400 342 389 482 692 684 590 551 688 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* * Preliminary estimate Data: UNCTAD 7
FDI: greenfield and expansions far below their pre-crisis peak Total value of announced foreign investment projects globally (US$ Billion) $1,456 $580 $615 $851 $891 $988 $928 $1,040 $734 $894 $763 $711 $733 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Note: Estimated values on March 20, 2017, for all projects - excluding retail FDI Projects Data: FDI Markets, Financial Times.. 8
The maturity in GVCs is a key structural factor Percent 45 Share of Intermediate and Raw Goods* in Total Merchandise Exports 41% 40 35 33% 30 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 * Intermediate and raw goods as defined in UN Comtrade s BEC classification Data: World Bank WITS 9
The pace of trade liberalization agreements also slowed down 20 18 16 14 12 10 8 6 4 2 0 Number of Regional Trade Agreements Entered into Force per Year* 20 in 2009 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 * Only covers trade agreements notified to the WTO Data: WTO RTA Database 6 in 2016 From 2015 Rethinking Trade and Finance by International Chamber of Commerce
WHAT S UP WITH CANADA EH? 11
Index (Jan 2000 =100) 200 The pace of Canada s real exports is slightly below global Comparison of Canadian and World Export Volumes 180 160 140 4.2% 120 100 80 3.9% 60 Jan-2000 Jan-2001 Jan-2002 Jan-2003 Jan-2004 Jan-2005 Jan-2006 Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Data: CPB World Trade Monitor, Statistics Canada CANSIM table 228-0061 12
This growth is broad-based Percentage contribution 30 Sector Contribution to Gain in Canadian Export Volumes (2009 to 2016) 20 10 0 Automotive Energy Metals and Minerals Consumer Goods Forestry Data: Statistics Canada Agriculture Industrial Machinery Metal ores and minerals Industrial Chemicals Aerospace Electrical Equipment
but longer-term, trade is still below its peak share of the economy Percent 90 85 80 75 Canada Trade Share of GDP 82.9 70 65 64.4 60 55 50 45 40 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Data: Statistics Canada 14
One bright spot is services Billions $ 110 100 90 80 70 60 50 40 30 20 10 0 $22 Billion in 1990, Equivalent to 14% of Goods Exports Canadian Services Exports $107 Billion in 2016, Equivalent to 21% of Goods Exports 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Data: Statistics Canada 15
So what does it all mean? We understand globalization in the sense of expanding global value chains, relocation of production, rapid investment and urbanization outside the developed world The data suggests that this process of globalization is over The process of adjustment to it results, however, seems to be peaking Economically, the worst thing to do at this point would be to run the truck back over the pedestrian in the road to undo the damage of globalization But historically, this is almost unavoidable. Fear is always a flawless compass / that leads us into trouble that s worse.
The Battlefield of Trade Keynes Smith Keynes Ricardo Martyn Manoilescu Graham Mill
The Reality
The arguments against trade are inconsistent 1. Jobs? - taken seriously: jobs are upgraded by trade, not created. Employment is determined by macroeconomic conditions. Some industries become obsolete. - in a period of globalization in the U.S. 1990 to 2000, imports rose at an average 12.1% per year while employment rose by an average of 1.8 million jobs per year and the unemployment rate fell from 5.6% to 4.0% 2. National security? - haven t heard this one in a while. But Musk returned space launch capacity to the U.S. and didn t ask to be protected. Also, countries who trade with each other are less likely to go to war (google the last Chinese warning to the U.S. ). 3. Infant industry? 4. Strategic protectionism keep rocks in our harbours! 5. Unfair competition!!! - trade is an excellent way to spread ideals, rules and prosperity
Challenges and opportunities Rise in protectionism and isolationism is a growing concern internationally but Canada will continue to carry the torch on trade liberalization both in international fora, such as the WTO, and in our bilateral relations. The collapse of TPP marks a step back in trade liberalization and modernization but, as a modern, ambitious and progressive agreement, CETA will set a new standard for 21 st century free trade agreements. Renegotiating NAFTA will be difficult in the present context but it also provide an opportunity to modernize NAFTA and demonstrate that trade can be mutually beneficial. We know that trade is good but we must work harder to make the case for a more progressive approach to trade, and make trade work for people. 20