Global trade momentum slowing down

This year, the global trade rebounded strongly despite severe supply constraints, intermittent lockdowns and logistics disruptions but the recovery was uneven across sectors and various regions. Generous fiscal stimulus and easy monetary policies in developed countries helped boost the demand for goods but the poorer countries that had lesser fiscal space suffered the consequences of higher commodity prices and freight rates.

The United States continued to maintain high tariffs on goods from China that the Trump administration had imposed but that didn’t seem to hurt China much. The end to the US-China trade war is not in sight. The Biden administration eased the tariffs on imports of steel and aluminium from the European Union (EU) and the G-7 countries agreed on minimum 15% tax on multilateral corporations in the country where they operate.

The EU had ended last year with an investment agreement with China but that made little headway as the EU member countries are yet to ratify the agreement. The EU entered into free trade deals with Mercosur, a group of four countries in South America. It decided to impose a carbon tax on imports from countries that use environmentally unfriendly processes to make the goods. After leaving the EU, the United Kingdom (UK) has signed up free trade agreements with some countries and is trying to negotiate more free trade deals with some other countries, including India.

China, UK and Taiwan applied for membership of the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CP-TPP), a trade deal between 11 Pacific Rim countries. After months of delay due to the COVID-19 pandemic, the largely symbolic African Continental Free Trade Area (AfCFTA) between 54 African countries was officially launched this year. The Regional Comprehensive Economic Partnership (RCEP) moved ahead with 11 of the 15 countries ratifying the agreement.

The Biden administration cleared the appointment of Ngozi Okonjo-Iweala as the seventh Director-General of the World Trade Organisation (WTO) but failed to appoint enough judges to the appellate body of the dispute settlement mechanism, keeping it dysfunctional. The twelfth ministerial conference of the WTO was postponed due to disruption of international passenger traffic in the wake of discovery of Omicron variant of the Covid-19 virus but still the WTO managed to go ahead with the plurilateral agreement of Services Domestic Regulations. At the 26th Climate Change Conference at Glasgow, many countries improved their commitments to achieve zero net emissions and pledged to do more in the coming years.

Unprecedented delays in ports, high freight costs, container shortages and blank sailings continued to disrupt ocean shipping through the year, although the problems seemed to ease somewhat towards the year end. The international passenger traffic remained subdued and the travel and tourism industry continued to suffer from Covid-19 related restrictions and low demand.

Many countries restricted exports of vaccines leading to surplus unused stocks in some countries and severe shortages in other countries. However, all countries kept their borders open for most goods, especially the test kits, medicines, masks, personal protection equipment etc. required for coping with Covid-19. 

As this year ends, the spread of new variants of Covid-19, inequities in vaccine distribution, inflation, withdrawal of fiscal stimulus, hardening interest rates, tightening liquidity, continuing supply shortages, high freight rates, delays in transportation etc. threaten to slow down the momentum in global trade. 

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