‘We hope we do not see a return to Nineteen Thirties protectionism’ | EUROtoday

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By Jonathan Josephs, Business reporter, BBC News

Getty Images Dr Ngozi Okonjo-IwealaGetty Images

Dr Ngozi Okonjo-Iweala says she is anxious in regards to the development of separate commerce blocks

Global commerce “is not having the best of times at the moment”.

That is the admission of the director basic of the World Trade Organization (WTO), Dr Ngozi Okonjo-Iweala. “We are seeing increasing protectionism, some undermining of the WTO rules, and some of this is leading to fragmentation,” she tells the BBC.

“Global trade is really part of the lifeblood for making countries resilient – and also for underpinning growth, so we are concerned about that.”

In current weeks and months these fragmentations have come to the fore with the EU imposing provisional tariffs of as much as 37.4% on imports of Chinese electrical autos (EVs). It adopted after the US in May launched 100% tariffs on Chinese EVs.

Both Brussels and Washington accuse the Chinese authorities of unfairly subsidising its EV sector, permitting producers to export vehicles at unfairly low costs, and threatening jobs within the West.

President Biden has additionally elevated import taxes on a variety of different Chinese merchandise that he mentioned shaped “the industries of the future”. These embrace EV batteries and the minerals they include, the cells wanted to make photo voltaic panels, and laptop chips.

Meanwhile, the US has been pouring billions of {dollars} of presidency cash into inexperienced know-how, via its Inflation Reduction Act, which goals to scale back a reliance on Chinese imports.

EU commerce commissioner Valdis Dombrovskis tells the BBC that Europe doesn’t wish to shut the marketplace for EVs. “We welcome imports, we welcome competition, but this competition must be fair,” she says.

Last yr, the quantity of worldwide commerce fell for simply the third time in 30 years, in response to the WTO. It says the 1.2% decline was linked to larger inflation and rates of interest, and is forecasting a restoration this yr.

However these components have their roots in occasions which are persevering with to essentially reshape the worldwide financial system, the International Monetary Fund’s (IMF’s) first deputy managing director Gita Gopinath defined in a current speech.

“What we’ve seen in the last few years, I would say, especially when it comes to global trade relations, is nothing like we’ve seen since the end of the Cold War.”

“The last few years, you’ve had numerous shocks, including the pandemic. We had Russia’s invasion of Ukraine, and following these events, increasingly, countries around the world are guided by economic security, and national security concerns, in determining who they trade with and who they invest in,” she mentioned.

That’s affecting countries as far apart as Peru, Ghana and Vietnam as they increasingly find themselves having to choose between strengthening economic ties with the western powers, or a China-Russia axis.

“We’re also concerned about the emerging fragmentation that we see in the trade data,” says the WTO’s Dr Okonjo-Iweala. “We’re seeing that trade between like-minded blocks is growing faster than trade across such blocks.”

She warns that “it will be costly for the world” to continue down this path. WTO research has estimated that price at 5% of the global economy, whilst the IMF has suggested it could be nearer to 7% or $7.4tn (£5.8tn) of lost output in the long run.

Getty Images A BYD electric car on display at a motor show in ChinaGetty Images

The West accuses Beijing of subsidising Chinese electric carmakers

The EU’s introduction of tariffs on Chinese-made EVs follows a surge in their exports to Europe over the last few years. Exports jumped from $1.6bn in value in 2020 to $11.5bn last year, according to one study, which said they now made up 37% of all EV imports into the EU.

BYD, Geely and SAIC are some of the Chinese EV makers said to have benefitted from billions of dollars worth of government help.

After many years of support Chinese EV companies no longer need that help, says Jens Eskelund, president of the European Union Chamber of Commerce in China. “They are today simply very competitive on their own terms. I think the introduction of tariffs is a symptom that something is out of balance.”

When it comes to broader relationship, Mr Eskelund says it’s “mind boggling” that since 2017 the volume of goods that the EU has sold to China has fallen about a third, even though China’s economy has been growing steadily.

Citing Chinese restrictions around market access for overseas firms, and tough security regulations, he adds: “I think it’s fair to say that that Europe still remains a significantly more open market to Chinese companies, then the other way around. And that is obviously something that needs to change.”

The chamber’s recent survey showed that members have the lowest confidence on record for investing in China.

It comes as the EU is trying to lower its economic dependence on China. European Commission President Ursula von der Leyen last year described the need to “de-risk not de-couple” its relations with China.

Brussels’ concerns include Beijing using sensitive technology for military purposes, and its support for Russia as it continues its offensive in Ukraine.

Companies including Ikea, Nike and Apple are also trying to become less reliant on China.

Whilst the EU and China are set to hold talks about the potential EV tariffs, Chinese state media has reported that retaliatory measures are being considered on EU goods including pork, cognac and luxury cars.

Getty Images A Hapag-Lloyd cargo shipGetty Images

Attacks by Houti rebels have forced cargo ships to avoid the Red Sea

However, there are other barriers for global trade to overcome, including in two of the most important arteries for moving goods around the world.

This year Panama Canal officials had to reduce the number of ships allowed to traverse the waterway. This is due to a lack of rainfall to fill the lake that feeds the canal.

Meanwhile, the Suez Canal is effectively cut off because of ongoing attacks on commercial ships by Houthi rebels in the Red Sea. Traffic through the canal is down 90%, according to logistics firm Kuehne+Nagel.

Rolf Habben Jansen, chief executive of the German shipping giant Hapag-Lloyd, says this disruption means that the rates his firm charges are up between 30% and 40%.

Whilst shipping costs are a small part of retail prices, Mr Habben Jansen says “these extra costs in the end get passed on” to consumers. That could end up pushing inflation up just as central banks are showing signs of getting it under control.

That would be “detrimental to consumers,” says the WTO’s Dr Okonjo-Iweala.

Despite all the tensions, she says trade has shown signs of resilience, and she adds that her organization can help countries solve their differences.

Meanwhile, Dr Okonjo-Iweala admits that some WTO guidelines might want to change to assist meet the problem of local weather change. “I strongly believe that some of our [global trade] rules, we do need to look at them,” she says.

“When they were put in place, decades ago, we were not confronting the kind of climate change threats we confront today.”

Regarding the elevated use of tariffs, she provides: “We hope we don’t have a repeat of what we saw in the 1930s. We had retaliatory tariffs, and it was downhill from there and everyone lost.

“So I do hope we will not enter into that kind of era again”.