Bold political leadership and vision can lift trade barriers.
Global trade volumes have slowed dramatically after a period of steady growth, with financial flows hovering at levels almost 70 percent below their peak, according to the International Monetary Fund.
“ Trade policy sets the stage for many of the derivative benefits that economies receive.”
Some of the sluggish growth is attributable to normal cyclical factors such as fluctuations in currency and commodity prices. But other causes, such as a troubling stasis in global trade policy, are reason for concern. Trade policy sets the stage for many of the derivative benefits that economies receive.
Addressing these factors and returning global trade volumes to their pre-recession levels require strong political leadership capable of connecting bold new policies with modern technologies that facilitate communication and connectivity between countries. Together, these moves will ensure a future in which trade is easier, less expensive and more democratic. When trade operates in that kind of friendly environment, everyone has the potential to win by participating in global value chains.
The rise and fall of trade growth
From 2000 to 2013, soaring commodity prices caused trade to grow unusually fast. To some extent, the 13-year rally reflected existing market conditions. More bulk carriers and tankers were moving more commodities such as copper ore and crude oil around the world, and these goods sold at higher prices. But slumping commodity prices in the last two years have cut overall export growth. This is of obvious concern to the industries involved and to their customers. But it doesn’t really affect the world economy as a whole. This condition will correct itself as economies adjust.
“ When trade operates in that kind of friendly environment, everyone has the potential to win by participating in global value chains.”
This brings us to the third cause of the growth slowdown: the halt to the broad-based reduction of global trade barriers. This reduction virtually stopped around 2010 and has not gotten back on track. From the early 1990s to 2010, the world economy was steadily reducing tariffs and other barriers through major multilateral and regional agreements.
Examples include the Uruguay Round, a trade negotiation that created the World Trade Organization (WTO) in 1995, and the series of accession agreements, which brought China, Taiwan, Saudi Arabia, Vietnam, Ukraine, Russia and others into the WTO.
These agreements brought world trade barriers to their lowest levels on record and nearly eliminated world tariffs on exports such as medical devices, computers, smartphones and tropical farm goods.
Liberalization of trade policy helped make the era from 1990 to the financial crisis the most productive for growth and poverty reduction in world history. Deep poverty rates worldwide fell by half, and American households gained almost $4,000 a year in purchasing power as supply chains made food, clothes and home goods more cheaply and readily available.
Unfortunately, supportive policy and other favorable trends have slowed or ended entirely. The Uruguay Round agreements have long since been implemented, and the WTO’s Doha Round remains deadlocked. Aside from Iran, no large countries remain outside the WTO.
“Trade policymakers now have the chance to build momentum with policies that can revive trade growth ”
Express delivery, internet and the rise of small business trade
As governments plan their next steps, our experience at UPS suggests a possible large new area of potential trade growth: a trade boom among smaller businesses and individuals who leverage the established global express delivery and technology networks to tap new customers.
The Internet now reaches 3 billion people, up from 1.5 billion a decade ago and 360 million in 2000. This, combined with the further expansion of global express delivery networks that were forged on the backs of multi-national value chains, has made exporting and importing possible for smaller businesses that previously could not engage directly in international trade.
Before these developments, the cost of finding customers and suppliers abroad was prohibitive for many companies. So were the costs of small shipments and returns. And the mountains of trade-related paperwork were so high that few small businesses had the manpower or the patience to participate in trade.
Today, the Internet helps companies reach countless potential customers and suppliers. With express delivery enabling small package shipping, a world of new opportunity has opened. Statistics show this clearly. In 2003, the United States had 119,000 exporting companies with fewer than 100 employees. Today that number has jumped to more than 280,000.
Trade policymakers now have the chance to build momentum with policies that can revive trade growth. For that to happen, broad-based liberalization must resume. The ambitious set of regional and multilateral trade negotiations now underway can help. So can the international regulatory cooperation agreements being negotiated. Specific agreements include the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and the Trade in Services Agreement (TiSA), as well as Europe/Asia, Asia/Asia cooperation efforts.
“The U.S. has at its doorstep a path that accelerates economic growth and trade in a significantly robust and inclusive way for businesses of all sizes. ”
As the negotiations continue, the Obama administration and Congress are set to consider Trade Promotion Authority (TPA). Many regard the bill, which would modernize the U.S. trade ambition in the 21st century, as essential to the United States’ ability to conclude TPP, TTIP and TiSA. At the same time, a raft of trade legislation also has expired in recent years and will need to be addressed. The Generalized System of Preferences (GSP), which provides duty-free access for many goods from developing and least-developed countries, expired at the end of July 2013.
The Africa Growth and Opportunity Act (AGOA), which provides benefits for countries in Africa, will expire in September 2015. A Customs Modernization bill, including a UPS-led provision to raise the de minimis threshold, has been under consideration for a number of years. And Trade Adjustment Assistance (TAA) legislation expired in December 2014. Clearly, the United States has at its doorstep a path that accelerates economic growth and trade in a significantly robust and inclusive way for businesses of all sizes.
To jumpstart trade growth, policymakers must support the boom in small-business and specialized, individualized trade. The WTO’s Trade Facilitation Agreement, which was completed in 2014, would enable a world trading economy that is friendlier to smaller businesses and entrepreneurs than ever before.
“ All this takes is bold vision and courageous leadership because the more trade barriers that we remove, the more trade happens.”
Strong trade growth could resume
The long stalemate in the Doha Round suggests some of these negotiations may be difficult. And we know trade liberalization often faces increased skepticism and opposition during periods of economic hardship.
But last year’s approval of the WTO’s highly pragmatic and valuable Trade Facilitation Agreement suggests that determined and creative policymakers can win uphill battles. The record of the last generation is strong. Trade liberalization launched an era of falling poverty and rising growth in the developing world, raised living standards worldwide and ensured access to markets that enabled the United States to recover from the financial crisis through exports.
The current stasis in trade policy should not continue. We see new opportunities, a future of higher participation and broader benefits for businesses of all sizes as well as a re-invigoration of global production and services trade that can deliver significant benefits for those who get it right. All this takes is bold vision and courageous leadership because the more trade barriers that we remove, the more trade happens.