The Trade War Talks
By: Amit Bhushan Date: 6th April 2018
The Global Trade discussions seems to have changed, quite a bit. These talks were till recently dominated by BRI (Belt & Road Initiative), which involve China led efforts and financing for large projects in emerging markets. Most of these infra projects were expected to support production and trade, but with limited insights about Trade of what (products/commodities) and with whom. With the Trade War noise, yes noise since not a bullet is fired as of yet, the looming questions in back ground are increasingly coming to forefront. While this may not show up immediately, but this is likely to start having an impact, sooner. What this would imply is a challenge to the pace of these projects as well as terms of trade for such projects. This may have an impact of the merchandise trade growth with significant impact on nations relying upon the same, even if ‘no bullet actually having been fired’. This is on account, that a consumer can’t be drained easily unless its power to pay is under attack and in the current unfolding economic scenario, China depends heavily on the paying power of the USA to be able to attack the same. In any case, China’s efforts to internationalize its currency have not been as successful as of late.
Even if no bullet is fired, this may still have implications for the emerging markets, some of which may already be weighing under concerns for growth, balance of payments as well as jobs. The efforts to reform domestic services sector in these markets may now be in need, to be put on a higher priority including the government services. This is on account of the possible flux in the merchandise & commodities trade scenario. It may be noted that while the services may also be impacted, however the impact is likely to be very miniscule in comparison. This is because for much of emerging market trade in services is still very small and many are dependent on import of services rather than exports with only a few exceptions. Thus improving the capabilities of the domestic enterprises and manpower for services is likely to be healthier for the economies as well as for the domestic jobs with much lower risks. Also, to have greater value addition for exports as well as imports locally though might be in demand from political perspective, but would need to be calibrated in the backdrop of a fast evolving trade situation. This is because of a hard bargaining stance being increasingly in fashion from nearly all quarters. There are also chances of the rise for Regional Cocoons of Trade or the Regional Trade Agreements as some of the dominant emerging economies try to form Trading blocs to protect their Regional markets as well as dominant position in some trade commodities in order to minimize fallout from any Trade Wars between the large Trading economies.
The call and likelihood of the Regional Banking satraps to rise to the occasion is likely to be much more. Even though the USA has not attempted to create any blocs unlike the Chinese BRI, however it likely to see rise of many Regional Trading blocs including toughening of the stance of the bloc-members on BRI. This is on account that many of these emerging markets would soon realize that the ability to negotiate a renminbi/yuan based price for the produce of manufactures/commodities is not as deep as that for the dollar/USD which are deeper on account of many countries and participants. The internal monopolistic or highly oligopolistic character of the Chinese markets/buyers and other nation using yuan as reserve currency not actively using it for trade or price discovery of commodities especially for trade with third country,, would tend to be a disadvantage. In fact, this would only tend to deepen the markets for USD even further. Any significant change is only likely till some significant energy nations decide in favour of trading in yuan for energy exports and use it to pay for imports including with some significant third country imports, which currently seems unlikely. Till that happening, the Chinese strategy to cope up with ‘Trade War talks’ would be watched. Let the ‘Game’ evolve…