"We, the trade ministers, of Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States of America and Vietnam, are pleased to announce that we have successfully concluded the Trans-Pacific Partnership."
This announcement about the Trans-Pacific Partnership (TPP) just ruffled the economists, political scientists, traders and businesspeople of the world. The US presents this trade pact as one that will promote economic growth, enhance competitiveness, raise living standards and reduce poverty. With extensive analyst reports, there remains no doubt that the Japanese automobile industry stands to gain the most with cheaper access to the US, the biggest export market for the Japanese car-makers. With Vietnam's eyes set on access to Japanese and US markets, it is likely that China will lose some of its market shares in these two countries. Certainly, this historic agreement might change China's position in the global trade spectrum.
No matter which country you're in, the TPP appears to be gearing one economy while slacking off another at the same time. But this might not happen immediately. And several other trade pacts are on their way; together these will shape the trade world of late 21st century. What is surprising and needs attention is that while the world is sinking into protectionist policies, the political leaders of 12 countries sat on a table to sign this common trade pact. This is more political than economic. While the economic impact will take time to roll off, the immediate political effect can already be seen in the form of insecurities among other states that are not a part of the TPP. And the story is not very different for the Transatlantic Trade and Investment Partnership (TTIP) between the US and the EU.
"These FTAs are causing eyebrows to be raised on the very existence of an institution like the World Trade Organization (WTO)..."
If I am Morocco, I see the TTIP happening and am keen on joining the European Union; if I am China, the TPP is a big blow to my face; if I am India, I am one country being really left out; if I am Brazil, I would rather not discuss my case.
But are these major agreements like TPP and TTIP the only triggers? The answer is no. There is increasing focus on regional integration with immediate neighbours, as is evidenced by the formation of regional blocs such as the South African Development Community (SADC) and the ASEAN Economic Community (AEC). Countries like the US which have no neighbours are reaching further to ink cross-Pacific or cross-Atlantic agreements like the recent Trans-Pacific Partnership (TPP) or the Transatlantic Trade and Investment Partnership (TTIP).
Even more than regional integration, countries are increasingly looking for bilateral relationships. Bilateral agreements are at their zenith, running fast ahead of the multilateral ones. A country like Canada, which ranks high on trade openness (trade forming 64% of its GDP), has signed seven bilateral Free Trade Agreements (FTAs) in the last seven years with Korea, Honduras, Panama, Jordan, Colombia, Peru and European Free Trade Association -- the TPP bus is on its way. The list is long. These FTAs are causing eyebrows to be raised on the very existence of an institution like the World Trade Organization (WTO) which does not support bilateral and regional agreements in the first place.
Despite the WTO regulations, countries are increasingly taking measures to play the game their own way. Lately, the Doha Development Round aimed a major reform in the international trading system through reduction of trade barriers. With countries failing to agree on the agreements, be it on account of food security, domestic protectionism or any other, it can be said that the future of the Doha Round is uncertain, if not fully bleak.
"With increasing openness across borders, it is close to impossible to ascertain the sources of prospective pain points. No wonder, countries are inclining towards domesticising their economies."
Today, people don't know what is coming next. With increasing openness across borders, it is close to impossible to ascertain the sources of prospective pain points. No wonder, countries are inclining towards domesticising their economies. There are more capital controls than there is capital openness. China has imposed new capital controls on cash withdrawal; Cyprus took similar steps in 2013; Ukraine in 2014 limited the purchase of foreign currency; Argentina has significantly high capital and foreign exchange controls -- relaxation of capital controls high up in the presidential campaign in Argentina stands testimony to the fact that this is one of the most contentious issues in the life of a common Argentinean.
Increasingly, companies might not want to play global. For example, with a stronger dollar and volatility in China, Russia and Latin America, companies in the US are in a dilemma, wondering if they should focus on catering to the domestic demand, thereby increasing their domestic shares. If you export, you bring dividends back home in the foreign currency - not a very inspiring scenario for American manufacturers today.
Overall, trade in value is contracting. What is worrisome is that the trade in volume is also contracting. The world has seen the third consecutive year in which the trade grew at less than 3%.
There is a situation of overall slowdown and hence a global panic. Every country is navigating its own way, trying to buffer itself from the shocks in the global market. The battle rests with the player who navigates using the right compass.