We're Risking a Global Trade War

Liam Halligan Daily Telegraph December 28, 2009

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Liam Halligan Published: 5:40PM GMT 26 Dec 2009

Comments 15 | Comment on this article

It was in December 1999 that a landmark World Trade Organisation (WTO) summit collapsed amidst mutual recrimination, finger-pointing and, ultimately, street violence on the north-west coast of America.

Since Seattle, two asset bubbles have burst, the world has twice plunged into recession and, following "sub-prime", global trade flows have suffered their sharpest drop since the 1930s.

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The global economy now badly needs an over-arching "trade round" – a worldwide deal to boost international commerce, while keeping protectionism in check. After all, it was the rash of tariffs and quotas imposed in the aftermath of the 1929 Wall Street crash that put the "Great" in the "Great Depression". While economically disastrous, such measures also provoked the mutual loathing and extremism that sparked the Second World War.

Even such obvious lessons from history are lost on today's politicians. As the realities of recession bite and unemployment rises, our so-called leaders reach for the protectionist comfort blanket, telling voters that shutting out the world "saves jobs".

Over the last year, the US – the global "free-trade champion" – has imposed 46 separate protectionist measures on goods and services crossing its borders. The EU, disgracefully, has implemented 90. The likes of China and India have retaliated, introducing 51 and 29 new anti-trade measures respectively. Little wonder that world trade volumes remain 13pc below their pre-sub-prime peak.

In 1950, international trade accounted for only 8pc of global GDP. That share has since more than tripled – with values increasing 24-fold – due to a relatively liberal global trading regime created by the WTO.

If a WTO member-state feels another is unfairly blocking its exports, it complains. The WTO arbitrates, interpreting international trade law – and if countries found guilty don't comply, all members close ranks. It's a harsh system but means nations have more to lose from random protectionism than from keeping trade free.

That tends to stop short-sighted politicians from imposing confidence-sapping, conflict-inducing trade barriers, so encouraging international commerce. Nations can then grow, spreading wealth around and making military conflicts less likely. This "multi-lateral" system is far from perfect, but is the best we have – and has driven global post-War prosperity. Yet it's now breaking down, with the world drifting towards a trade war.

In the aftermath of Seattle, and then the 9/11 attacks, WTO members met in the capital of Qatar to launch "the Doha round" of trade negotiations. Mindful that other parts of the world were gaining in economic power, and rattled by terrorism, Western leaders pledged Doha would be the "development round" – acknowledging t

Liam Halligan Published: 5:40PM GMT 26 Dec 2009

Comments 15 | Comment on this article

Since Seattle, two asset bubbles have burst, the world has twice plunged into recession and, following "sub-prime", global trade flows have suffered their sharpest drop since the 1930s.

Eight years later, the Doha talks remain gridlocked – an abject failure. The WTO ministerial meeting held earlier this month in Geneva was the first for four years. So tense was the atmosphere that Doha – the WTO's entire raison d'etre at this point – didn't even appear on the summit agenda.

Had the 153 member states signed a deal, then thousands of pre-agreed reciprocal trade liberalisation agreements would have clicked into place. The benefits, in terms of promoting commerce and tackling poverty, would have been felt by billions. Instead, the trade diplomats' political masters told them to stall.

The world economy desperately needs a lift, yet we're farther away from a multi-lateral trade deal than at any time since the 1930s.

The Uruguay round was signed in 1994, after eight years of talks. Can't Doha be saved? The trouble is, the world is now more complex than the mid-1990s. The emerging giants are now so powerful that the West can't just cook up a deal and ram it through. But our politicians seem to think they can.

A few years ago, Pascal Lamy, the WTO's long-standing director-general, told me that some Western nations retained "neo-colonial" attitudes towards the rest of the world. The man spoke the truth. Having bought into the WTO, many developing economies are furious at what they see – rightly, in many cases – as Western intransigence. There's now a real danger they will go their own way, cutting bi-lateral trade deals that exclude the West.

The bottom line is that "we" as Westerners have more to lose than "they" do. "They" are growing fast, "they" are driving the recovery in trade we're now seeing and "they" will soon account for the lion's share of the global economy. Over the coming decade, such realities will become stark. Western leaders need to bite the bullet and complete the Doha round. The reality is that, from our perspective, the terms can only get worse.

Russia's slick oil pipeline will change world economy

OVER the next few days, on Russia's Far Eastern coast, something will happen that will profoundly impact global politics, diplomacy and the future shape of the world economy.

The new Kozmino sea terminal, close to Vladivostok and able to accommodate huge oil tankers, will swing into operation. The opening symbolizes the launch of a major new pipeline, connecting Russia's Eastern Siberian oil fields with fast-growing Asian markets, not least China.

Russia pumped more than 10m barrels of oil a day last month. With Saudi Arabia doing its bit to limit output from the OPEC exporters' cartel, Russia is now the leading crude producer on the planet. Factor in gas exports and the Bear is the world's biggest energy supplier by far – and would remain so even if Saudi pumped oil as fast as it could.

Russia's existing energy export pipelines point West – and are focused on supplying Europe. But that's about to change. Linking East Siberia's vast reserves with the Pacific Ocean, the first 2,700km branch of the new ESPO pipeline also opens this week. So from now on, Russia will be able to diversify crude exports away from traditional Western markets and focus on meeting Asia's near-insatiable energy needs, not least via tankers docking at Kozmino.

Most significantly of all, this first phase of ESPO means Russia can pump oil to within just a few kilometres of China's border. Moscow and Beijing recently signed a head-spinning $100bn (£63bn) crude supply deal, with Russia pledging to quench China's massive oil thirst for the next 20 years.

ESPO is what political strategists might call a "game-changer". It means Russia will be able to send its oil either east or west – so can drive a harder bargain when selling crude to Europe. Alongside the ESPO oil pipeline, the Russians are constructing a gas pipeline too – due to open in 2012. That will similarly alter the power balance of gas negotiations, at a time when Western Europe is becoming ever more reliant on Russian gas.

As regular readers will know, I have a long-standing interest in emerging markets – Russia in particular. The asset-management company I work for specialises in the region. So feel free to think of me as biased. Dismiss everything I say. But I'm still amazed that what's happening in Russia's Far East – not least ESPO and the Russia-China energy link-up – isn't headline news in the West.

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Comments: 15

"In 1950, international trade accounted for only 8pc of global GDP." Assuming the statistic is correct it likely confirms the ease with which goods are transported. Increase the price of fuel and lay your bets that the trend will reverse.

"The real 'game-changer' is Shale Gas. " Bingo! If we suppose that the Middle East cut off exports of cheap oil, then the price of oil would climb sharply and projects like shale oil and gas would become economic. This would be repeated across a wide range of products. People often assume that if the West no longer manufactures of grows this, that and the other, then we cannot. This isn't so. We import products from the developing World because they have a comparative advantage in pricing, not because we are incapable of producing them ourselves. If a trade war broke out, we would quickly see what we saw in two World Wars, which is that domestic production can speedily substitute for imports, and our lifestyles can be adjusted. Without cheap imported clothes, we would have to spend a little more, but reopening textile mills in the UK would provide extra employment. Without imported out of season fruits and vegetables, our diet would be a bit boring, but we would survive just fine. How thing would turn out in the developing World is another story.

This is all very well articulated, but the reality is that you have a lot of current account deficit laden industrialized countries, whose economies are very reliant on money inflows for economic activity. These deficit countries have seen an unprecedented decline in there industrial base, if these countries do not try to resurrect their industrial bases they will be destined for terminal decline and social unrest. These imbalances need to be addressed somehow, it can not continue indefinitely.

Jonathan. There was a time when we borrowed from China to buy their stuff. Now we don`t bother, we just print our own money.

Would someone be kind enough to explain to me what the word trade means in this global market? I always thought trade meant the exchange of goods and that money was simply a means to help that to happen. I must be naive because I do not see much trade with China or even India. What I do see is China lending us money to buy their stuff. Then they take that money and lend it to us again to buy more of their stuff. So are we really trading with China or are they simply developing the means to rule the west without ever firing a shot? I recall the politicians promising that the Chinese would buy our IT products - but then this poor IT Specialist was laid off and I concluded I had misheard. But after 10 years of this "stuff" I am beginning to think we have all been conned somehow. But for what purpose? Are the politicians and pundits really as ignorant as these postings suggest? Surely there is a master plan and someone intelligent is in control, looking after my health and welfare. PS - I jest.

We always seem to get economists only looking from the supply side. I fell for that when they said oil would soon be $200. People underestimated the fall in demand. In the UK people chose to spend to much of their disposible income on housing. Everything fell apart when energy prices went through the roof. We are in a global economy. Foreiners invest in Russia dont they? Foreiners work in Russia? Russian can`t eat all. They will also want to trade. At the end of the day the people who work the hardest and invest part of their income will be the most wealthy.

You are too soon with that trade war assumption. Things have to get far worse. My guess is that Brown & Darling are waiting for the EU and it's fledgling states to get into a worse financial mess than the UK is currently in, then the UK will "look better" when compared to Spain,Greece & some others. If that is the case then Brown won't be in office "I told you so".

Steve on December 27, 2009 at 10:27 AM Dear Steve There is always only one sole factor that generates war - monies! WWI was one fought for colonies (apart from Namibia, Germany had none. Italy had Libya and Eritrea). Than the Great Depression brought the Nazis into power. Both Hitler and Mussolini couldn't had made made it without big business support. WW2 help the US to come out of depression and turned Europe into the US colony. Now the Germans are turning to the Russians. They have been building special relationship with Russia for 60 years and now it is started to bears fruits. As usual, Liam is right. Better learn something from him whilst you can. The Russian pipe lines carry real oil and gas. That is what makes the world go round not the paper trading in the City of London.

Liam - this time you have got it wrong. Look about you - Britain has been in a trade war (its called Globalism), the war is lost already - and our country has become the spoil. We are witnessing 'the fall of the United Kingdom' because we did not put UK interests and her people first.

Andy Pandy on December 27, 2009 at 10:04 AM Shale gas is a potential huge energy source, however, your comment is far too simplistic. Currently within the first year of production output from this source falls by over 90% making it uneconomic at todays prices. A lot more work needs to be done on the technolgy. The same applies to the Bakan oil shale in the USA. A huge opportunity but the technolgy is nowhere near making this economic. For the time being Russia will remain an energy powerhouse.

So the opposite of protectionism would be NOT to open the borders or outsource our jobs and industries. Not to allow our energy and utilities to be bought by overseas profiteers. I tell you the truth the lack of protection of the indigenous people of the UK has made me leave. I agree unfair and damaging tariffs damage trade, but must we all work for a dollar or two a day in order to compete?

"After all, it was the rash of tariffs and quotas imposed in the aftermath of the 1929 Wall Street crash that put the "Great" in the "Great Depression". While economically disastrous, such measures also provoked the mutual loathing and extremism that sparked the Second World War." Once again, an amateur historian attempting to blame WWII on the depression. There were many events leading to WWII and, no doubt, the depression had a part to play but the overriding culprit was German nationalism in the fifty years before WWI leading, immediately afterwards and into the 1920s, to the rise of Hitler and other extremist parties of the left and right and facilitated by the Great Inflation. Where were the extremists in USA, GB, France and many other countries during the 1930s? Didn't they also suffer the depression? Mussolini came to power in the 1920s and Russian communism was in place by 1918. The Great Depression and trade protectionism had little to do with WWII.

The real 'game-changer' is Shale Gas. Russia's dreams of energy hegemony are collapsing under the avalanches of American technical innovations. Just do a google search 'No Hot Air'. Russia is about to find itself in a very uncomfortable decade.

Excellent description of our present and future economic reality. It does not bode well. Our so called 'leaders' are very worried, scared would be a better choice of adjective. The calibre of our leaders is dire. They are not the best but the worst of men. Human evolution has produced weak sycophants to lead us through a period of immense danger. Moving on, from a geopolitical stance, tension between Russia and China is the fault line that is most likely to dismantle the world as we know it either for better or worse.

How can nations,like USA and UK, carry on importing goods when they have huge net foreign debts. It has got to be the BRICs that get global trade going.

Russia is not an emerging market, it is a submerging one. There are two groups of forces affecting Russian economy. One group, such as oil prices, is pulling Russian economy up. Another group of forces, such as Russian protectionism, corruption, bureaucracy, authoritarian political system, and criminal political leadership, is pulling Russian economy down. Unless Russian citizens take matters in their hands and demand changes, starting with the backward political system, Russian economy is doomed for stagnation.