© © Reuters
This year could end today and it would still compete with the most difficult times for the international trading system. But the next three and a half months could bring even more potential disruption that could secure 2020’s place as the most turbulent in modern history.
Several key events will occur that can energize the trajectory of the global trade regime towards dysfunction and chaos. On the flip side, it’s possible that the results could help cushion the world‘s worst recession since the financial crisis and put the world on the path to recovery.
“There is no doubt that the next three months will be crucial for the state of world trade,” said Edward Alden, senior researcher at the Council on Foreign Relations. With a rise in protectionism similar to that which preceded the Great Depression, “the echoes of the 1930s are pretty clear,” he said.
At the end of summer, here are five key political and economic events that affect trade for the rest of the year:
1) WTO aviation dispute
A panel of three World Trade Organization arbitrators will soon determine whether and to what extent the European Union can retaliate against the United States for its illegal subsidies to Boeing (NYSE 🙂 Co.
While the EU has asked the WTO for permission to impose levies on $ 11.2 billion of US goods, those close to the case say the figure will likely be lower – perhaps well below the 7. 5 billion dollars granted by the WTO to the United States in its parallel dispute. against EU subsidies to Airbus SE (OTC :).
Why the fight between Boeing and Airbus is growing: QuickTake
It is hoped that the decision, which could come in a few weeks, could prompt the United States to resume negotiations to settle the 15-year-old dispute. A settlement would be a huge relief for European exporters, who currently face tough US retaliatory tariffs, and for US industries who may soon find themselves at the mercy of EU tariffs allowed by the WTO.
2) The US presidential election
Perhaps the most important trade development this year is the possibility for Americans to give President Donald Trump a second term.
If Trump is re-elected in November, it is likely that the United States will increase tariffs on foreign trading partners in order to redistribute and diversify American supply chains – especially for medical products.
Read more: Trump vows to dramatically reduce US economic ties with China
As Trump pointed out at a press conference on Monday, a second term would almost certainly see an escalation in the United States’ geopolitical struggle with China, which Trump accuses of spreading the Covid-19 pandemic and the American economic misery.
“If Trump wins, expect more of the same – a roller coaster ride of volatility, threats and tariffs,” said William Reinsch, a business executive in the Clinton administration and senior adviser at the Center for Strategic and International Studies. If Democrat Joe Biden wins, “he’s already said, in fact, that trade is going to be on the back burner while he deals with the pandemic and the economy.”
3) WTO leadership race
Amid all this, WTO members will scramble to select a new leader to help revive the castrated arbiter of international trade. The organization is currently operating without a leader following the early departure of Roberto Azevedo on August 31 and the vacuum at the top could not have come at a worse time.
The WTO’s dispute settlement function is paralyzed, its negotiating arm is essentially frozen, and the organization is beginning to give way under the pressure of the US-China battle for trade supremacy.
Who will lead the WTO and help it avoid collapse ?: QuickTake
The complex and opaque deliberations of the WTO are led by a “troika” of trade ambassadors who hold “confessionals” with each of the 164 WTO members to select a consensus winner.
The race itself is fiercely competitive, punctuated with nationalist aspirations, and subject to political twists and turns. If WTO members are unable to choose a leader by consensus, a qualified majority vote could be taken as a last resort – something unprecedented in the organization’s 25-year history.
“The WTO is in a difficult situation and would benefit immensely from a reformer willing to push countries for change,” said Clete Willems, partner of Akin Gump and former head of the Trump administration.
4) fight against digital sales tax
US and EU policymakers are dozing off to a damaging trade dispute over foreign taxes on US tech companies like Facebook Inc (NASDAQ :). and Alphabet (NASDAQ 🙂 Inc., Google.
On the one hand, cash-strapped governments in Europe and elsewhere are enforcing new digital sales tax rules on foreign companies that generate huge revenues in their jurisdictions. But the Trump administration argues that such taxes unfairly discriminate against U.S. businesses and threaten retaliatory tariffs that could exacerbate the pain of the global recession.
Why “digital taxes” are the new flashpoint in the trade war: QuickTake
Although nations sought to resolve the issue at the Paris-based Organization for Economic Co-operation and Development, the United States withdrew from those talks in June. If a deal is not reached this year, America’s top trade official has pledged to impose tariffs on nearly a dozen countries in 2021.
New and significant trade barriers between the UK and the EU arrive at the end of the year. That’s because the UK is leaving the single market and the EU’s customs union – meaning UK exporters have to endure new customs formalities that will create queues at borders and persistent delays.
Read more: Boris Johnson’s taste for the danger of Brexit could jeopardize trade deal with EU
This will happen regardless of whether Britain can come to an agreement with the European trading bloc on the future of their economic relations. If the UK fails to negotiate a duty-free, quota-free deal with the EU, UK exports will be subject to terms negotiated by the WTO which will result in costs, controls and red tape that no longer exist. ‘haven’t existed for decades.
© 2020 Bloomberg L.P.