Todd Bishop
Around the local time on June 12, at the close of the G20 summit in Osaka, the call for “G20’s top priority is to end the trade war” has been heard from Tokyo and other places. This is also an urgent need for countries in the global trade chain and upstream in the China-US trade war for one year.
Previously, the actions of the United States before the G20 summit in Japan have caused further unease among the global political and financial circles. The U.S. representative vigorously acted at the G20 finance ministers meeting that ended on the 9th, and let the communiqué of the General Assembly delete the content of “aware of the urgent need to resolve trade tensions”, which fully reveals the negative impact of trade wars on the world economy. But is the economic tension that spreads from the China-US trade war to the world really does not exist?
When American politicians headed by US President Donald Trump were satisfied with the current environment, an atmosphere of cover-up and burglary was shrouded in Washington.
At present, when the global business community and the economic community hope that the G20 summit in Osaka will ease the tension in the global economy, the voice from Washington has always made the outside world feel uneasy. It is possible that the “China-US hard decoupling” is forcibly triggered, and Trump, who is always in a state of cloaking, is still the biggest uncertainty and risk factor.
Spread to the global trade war shadow
For economic observers, the China-US trade war was marked by the tit-for-tat white papers and statements issued by the two countries around June 2 and 3, and entered the protracted phase of the overweight sanctions. The impact of the China-US trade war on the global economic landscape has also gradually spread.
The current situation in the world’s major economies is still a recession and a shrinking exports. Vietnam, Bangladesh, the Philippines and other “new 11 countries” (N-11, also known as “Golden Diamond 11 countries”) temporarily showed economic improvement due to industrial transfer. But this is only an individual phenomenon.
Starting from February 2019, in the turbulent global trade situation, the statistics of Japan, Germany and the Eurozone show that the upstream countries of the global industrial chain are under the influence of the trade environment between China, the United States, the United States, Europe, the United States and Japan. It shows a situation in which exports are sluggish, trade activities are weak, and manufacturing is lacking in confidence. In addition, the two major automobile manufacturing countries, Japan and Germany, have also suffered from the collapse of the global auto market caused by the global trade war. This makes its market performance more pessimistic.
Among them, Japanese exports fell by 8.4% compared with the same period of last year, lower than the Japanese government’s expectations, hitting a new low since November 2016. German export orders also hit the biggest drop in more than six years. Authoritative market research institute IHS Markit also pointed out that the euro zone’s economic indicators in February 2019 “close to stagnation.” When the China-US trade war broke out again in May 2019, the impact of the recession gradually expanded from the upstream economies of the supply chain to the middle reaches.
According to data released by the Organisation for Economic Co-operation and Development (OECD) in late May, during the first quarter of 2019, South Korea, Germany, Russia, Indonesia, Japan and other G20 countries showed shrinking exports.
The analysis believes that there is a close global supply chain between the G20. The supply chain was not spared under the influence of the China-US trade war, and its recession spread to many countries. According to the data, South Korea’s exports in the first quarter of 2019 fell by 7.1% from the previous quarter, ranking the first in the G20. Followed by Brazil, the country’s exports fell by 6.4% from the previous quarter due to oil and iron ore supply problems. Russia, Indonesia and Japan were also among the recession rates of 4.4%, 4.3% and 2.3% respectively.
In this way, the words of the financial and economic circles of various countries in the G20 finance ministers meeting hope to write into the communiqué of the conference that “the realization of the urgent need to resolve trade tensions” shows the uneasiness of other countries in the global supply chain. When the United States tried to delete this sentence, in the face of the worsening global economic situation, Washington’s intention was to leave only four words.
According to the forecast and intelligence of the International Monetary Fund (IMF), the economic contraction will be more than 20 years in the above countries.
At present, Argentina’s inflation rate is accelerating, and the IMF has predicted that the country will experience a recession. After Turkey suffered another continuous decline in the stock market, bond market and foreign exchange market in March 2019, its economic contraction will also become a high probability event. It is also possible for India to suffer from the “economic loss of momentum” after its central bank cut interest rates. The economic slowdown in Iran and Saudi Arabia has also been determined early by the IMF. Considering the potential risks of China-US trade wars have hit the oil market and the securities market, the panic of investors has further fueled the impact of this storm.
How are emerging markets hit?
It must be acknowledged that there are many reasons for the shrinking exports and economic recession in emerging markets in 2019. Energy, minerals, finance and other factors are undoubtedly worthy of reference, but the China-US trade war has hit the upper and middle reaches of the industrial chain countries more prominently. The most notable example is the “global economy of canary”. South Korea, and Germany, which has long been known as the “European economic engine.”
According to the data, Korea’s trade dependence is between 67% and 68%. Most of its exports are “intermediate products” (also known as intermediate inputs) and “end products” in global industrial production: the former includes semiconductors, metal products, petrochemicals and steel products; the latter includes automobiles, ships and related parts. South Korea’s exports of these products are among the highest in the world. The negative economic feedback it encountered was a direct reflection of the China-US, US-European trade war: South Korea’s decline in exports to Europe and China is behind the decline of the two regional economies and industrial production; the reason for South Korea’s decline in US exports stems from US trade protection behavior.
By the same token, Germany also experienced economic downturns after the sharp decline in the production of intermediate products. Germany’s trade dependence has been around 70%. In April 2019, industrial production fell by 1.9% compared with the previous month, and exports also fell by 3.7% from the previous month, both hitting a new low in the past five years. Some analysts believe that the tension between China-US trade has inhibited global trade growth, which has affected German industry in 2018; cars, which are Germany’s main export commodities, have also suffered a double blow from the decline in demand from the EU and China.
As far as the current situation is concerned, Trump has demonstrated in his China-US trade war that he wants to change the global supply chain with great force. He seems to think that if China and the United States can hardly decouple, the problems in the United States can be solved. The actual situation is not the case. In the process of Trump’s gradual destruction of the supply chain, the outside world can only see the cost increase, the price is raised, and global consumers have to pay for this storm. And the crisis in emerging market countries is getting bigger and bigger.
For other countries in the global supply chain, except for the praying that the G20 summit in Osaka can bring a little turnaround, the only thing left is to sign each other’s mutual insurance, so that the trade dispute between China and the United States will escalate, leading to an export environment. A certain degree of protection is given in the face of challenges. To this end, the United Kingdom and South Korea have signed a “temporary alternative trade agreement” on June 10, local time, so that the two companies can “continue to trade without any additional barriers.”
It is undeniable that the partial chaos caused by the trade war will make certain policies flexible or countries with geographical advantages fully developed. The most typical of these is Vietnam. According to data from the Foreign Investment Agency under the Ministry of Planning and Investment of Vietnam, the country attracted a total of US$16.74 billion in capital in the first five months of 2019, and received a total investment of US$12 billion in processing and manufacturing. . Under the stimulus of foreign capital, Vietnam’s total exports in May 2019 reached US$21.5 billion, an increase of 7.5% compared with May 2018, the highest level in Asia. Vietnam’s exports to the United States in the first quarter of 2019 also surged by 40%.
However, Vietnam was listed as one of the “currency exchanger countries” by the Trump administration in May and is likely to encounter potential trade or tariff strikes. 32.5% of Vietnam’s investment in Vietnam also entered Vietnam through this channel. In addition, a large number of projects initiated in Vietnam in the past 12 months have also been mostly moved by processing plants. This means that the “advantage” that Vietnam has achieved in the near future is actually a safe-haven behavior during the trade war, not a real boom. Hanoi is also aware of the dangers. In late May to early June, it has close contacts with companies in Russia, Norway, Sweden, Italy, the Czech Republic, South Korea and China, as well as political and economic circles to ensure that Vietnam is in the region. As the world situation continues to be intricate and the world economy is expected to show signs of slowing growth and potentially many challenges, it will be spared from adverse effects due to “different economic and political differences in some major powers.”
In general, the current environment may still be uncomfortable. On June 10th, Trump himself said in a TV interview that “to tax French wines”, “China has lost 15 to 20 trillion US dollars during my tenure” and the words are even heavier. Worries from the outside world. When Trump-led America continues to create tensions with its looting, emerging market countries in the global supply chain continue to feel threatened and stressed.
