India in the evolving global trading
system Martin Wolf, Associate Editor &
Chief Economics Commentator, Financial
Times
CUTS
10th March 2016
Delhi, India
Embattled future of global trade policy
• Triumph of global trade
• Trade in the post-2007 era
• Challenges to the trading system
• Options for Indian trade policy
• Conclusion
2
1. Triumph of global trade
• Four features of world trade:
– Greatest openness to trade and investment in world history
– Almost universal embrace of globalisation: the average ratio
of trade to GDP has risen from about 10 per cent in the mid1950s to close to 25 per cent today
– Higher barriers to trade in services than in goods and sharp
divide between trade in face-to-face services and services
delivered as “bits”
– Rise of China as a new pole for world trade
3
1. Triumph of trade
TRADE GROWTH IS STRONG BUT SLOWING
WORLD EXPORTS OF MERCHANDISE AND GDP
(Source: WTO)
10000
1000
100
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Merchandise
4
GDP
1. Triumph of trade
TRADE GROWTH IS STRONG BUT SLOWING
WORLD MANUFACTURING TRADE AND OUTPUT
(1950=100)
10000
1000
100
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Manufactures
5
Manufacturing
1. Triumph of trade
GLOBALISATION IS THE STORY OF OUR AGE
RATIOS OF GLOBAL FDI, SALES OF FOREIGN
AFFILIATES AND EXPORTS OF GOOD AND SERVICES
TO GDP (per cent) (Source: UNCTAD)
50.0%
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
47.0%
41.4%
33.5%
28.8%
28.7%
21.2%
19.4%
10.1%
FDI Stock
Sales of foreign affiliates
1990
6
30.3%
2005-07
2014
Exports of goods and
services
1. Triumph of trade
MERCHANDISE MORE TRADED THAN SERVICES
GLOBAL TRADE OF GOODS AND SERVICES
(per cent of sectoral value added)
(Source: Subramaniam and Kessler)
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
85%
53%
47%
43%
30% 33%
7%
Merchandise
7%
10%
Services
10%
Merchandise
Gross Trade Measure
1980
7
11%
Services
Value Added Measure
1995
2008
16%
1. Triumph of trade
CHINA EMERGES AS A NEW CENTRE FOR TRADE
MEGA-TRADERS:
SHARES IN WORLD MERCHANDISE EXPORTS
(Source: Subramaniam and Kessler)
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
1870
1913
1929
UK
8
1950
Germany
1973
US
1990
2000
Japan
2012
China
2020
2030
1. Triumph of trade
CHINA EMERGES AS A NEW CENTRE FOR TRADE
VALUE OF EXPORTS ($bn)
$2,500
$2,000
$1,500
$1,000
$500
$0
Jan-2000
Jan-2002
US
9
Jan-2004
Japan
Jan-2006
Germany
Jan-2008
Jan-2010
France
Jan-2012
China
India
Jan-2014
2. Trade in post-2007 era
• There was no wholesale move to protectionism
during the financial crisis, unlike in the 1930s
• This is an important achievement. It was due to:
– Policy: expansionary macroeconomic response
– Institutions: especially the role of the WTO
– Interests: role of multinational companies
– Ideas: triumph of the ideology of the market
– Welfare: role of social safety nets
– Convergence: success of emerging economies
10
2. Trade in post-2007 era
• Yet trade growth is slowing
• This is probably because of:
– Slowing liberalisation and some protectionism
– Exhaustion of underlying trading opportunities in
merchandise trade and
– Technological changes and re-shoring
• A big question is whether the trade dynamic has
permanently disappeared
11
2. Trade in post-2007 era
TRADE REBOUNDS BUT ITS GROWTH SLOWS
GROWTH OF WORLD MERCHANDISE EXPORTS AND
GDP (Source: WTO)
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
-15.0%
2000
2002
2004
2006
Merchandise
12
2008
GDP
2010
2012
2014
2. Trade in post-2007 era
TRADE REBOUNDS BUT ITS GROWTH SLOWS
GROWTH OF WORLD EXPORTS OF MANUFACTURES
AND MANUFACTURING (Source: WTO)
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
2000
2002
2004
2006
Manufactures
13
2008
2010
Manufacturing
2012
2014
2. Trade in post-2007 era
RISE AND FALL OF TRADE DYNAMISM
GROWTH OF THE VOLUME OF GLOBAL TRADE AND
GDP (over the previous 10 years; per cent) (Source: IMF)
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
10-year trade growth
14
10-year GDP growth
3. Challenges to the trading system
• Failure of the Doha round launched in November
2001 and so rising fragility of the World Trade
Organisation
• Rise of US hub-and-spoke agreements and the
super-regionals (TPP (Trans-Pacific Partnership) and
TTIP (Transatlantic Trade and Investment
Partnership, with the European Union)
• Trade as great power conflict
15
3. Challenges to the trading system
• TPP involves 11 countries, most significantly Japan.
• The partners account for 36 per cent of world output,
11 per cent of population and just under 30 per cent
of world trade
• TTIP involves the US and EU, which account for 46
per cent of world output and just over 30 per cent of
world trade
• The argument for these super-preferentials is that
these are now the only way to liberalise trade
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3. Challenges to the trading system
US SEEKS TO CARVE OUT ITS OWN BACKYARD
SHARES IN WORLD TRADE, 2014 (exports plus imports)
EU28
15%
US
13%
Rest of the world
39%
Other TPP
19%
China
14%
17
3. Challenges to the trading system
US SEEKS TO CARVE OUT ITS OWN BACKYARD
SHARES IN WORLD GDP (at purchasing power parity)
EU28
17%
Rest of the world
39%
China
16%
18
US
16%
Other
TPP
12%
3. Challenges to the trading system
• There is a risk that pursuit of discrimination would
fragment trade, reduce efficiency and worsen
international relations, as Jagdish Bhagwati, the
doyen of trade economists, has long argued
• There is a far stronger case for “open plurilateralism”
• TPP and TTIP are also different. In the words of
Pascal Lamy, former director general of the WTO,
“TPP is mostly, though not only, about classical
protection-related market access issues . . . TTIP is
mostly, though not only, about . . . regulatory
convergence.”
19
3. Challenges to the trading system
• “Shallow integration” has led to “deep integration”
• Particularly difficult issues in the latter are:
– Protection of intellectual property
– Food safety, genetically-modified organisms and drug safety
– Environmental standards
– Labour rights
– Cultural protection and, not least
– Investor-state dispute settlement
• All these will create particularly big challenges for
India. But even the US might not ratify its deals.
20
3. Challenges to the trading system
• The role of private business in subverting public
choices is a concern
• Also, the gains from liberalisation are small, at least
to the US
• A study of TPP by the Peterson Institute for
International Economics suggests it would raise US
real incomes by 0.4 per cent. Completion of TPP and
TTIP might raise real incomes in the US by 1 per
cent.
21
3. Challenges to the trading system
• Four further issues:
– Global monetary system: sanctions on exchange rates?
– Climate: sanctions against emitters?
– Inequality: trade, wages and the new protectionism?
– China: competition or co-operation
22
4. Options for Indian trade policy
• India will soon be the world’s most populous country
• India has the world’s fastest-growing large economy
• India needs to sustain fast growth for at least a
generation
• Its trade needs to expand at least in line with its GDP
• Domestic and global liberalisation are also strongly
mutually supportive
• India is a relatively small trading power today. But its
influence will also grow.
23
4. Options for Indian trade policy
INDIA IS STILL SMALL IN MERCHANDISE
SHARES IN WORLD MERCHANDISE EXPORTS 2014
(Source: WTO)
Saudi Arabia
3%
India
3%
Tawan
3%
Switzerland
Australia
2% 2%
UAE
4%
China
22%
Mexico
4%
Canada
5%
Russia
5%
Extra-EU
21%
Korea
5%
Japan
6%
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US
15%
4. Options for Indian trade policy
BUT NOT IN COMMERCIAL SERVICES
SHARES IN WORLD EXPORTS OF COMMERCIAL
SERVICES 2014 (Source: WTO)
Canada
3%
Thailand MacaoAustralia
2%
2%
2%
Taiwan
2%
Russia
2%
Korea
4%
Hong Kong
4%
Extra-Eu
34%
Singapore
4%
India
5%
Japan
5%
25
China
8%
US
23%
4. Options for Indian trade policy
• Options:
– Status quo: unilateral liberalisation, reliance on WTO, plus
limited and undemanding FTAs
• Pros: the economy is already not quite well
• Cons: risks serious loss of opportunities for market access as
super-FTAs emerge
– Enter into bilateral FTA agreements with major trading
powers, notably US, EU and even China
• Pros: large potential for gains from trade and increased
domestic competition
• Cons: unequal bargaining power in negotiations
26
4. Options for Indian trade policy
– Seek to enter relevant mega-regionals: TPP or the Free
Trade Area of the Asia Pacific (FTAAP), now being
considered by APEC
• Pros: India would enjoy even larger potential gains from trade
and enhanced competition in the domestic economy
• Cons: these are very demanding agreements while entry into
TPP might allow very little bargaining by India
– Join Trade in Services Agreement, Government
Procurement Agreement or Environmental Goods
Agreement
– Combine the bilateral, mega-regional and plurilateral options
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5. Conclusions
• This is a very difficult and confused time for trade
policy
• India is seen from the outside as a recalcitrant player
in the system
• But India very much requires an open world economy
• It also needs to use trade as a lever for domestic
reform and enhanced competition
• It should take a proactive and ambitious role in the
emerging trade architecture
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