G20 must take action on slow global growth

The puzzling long spell of uninterrupted slow global trade growth since the financial crisis of 2008 is set to feed into the agenda of this year's Group of 20 (G20) Summit.

With the Doha round still in a deadlock, experts expect G20 policymakers to seek progress in certain segments of trade when they gather in China's coastal city of Hangzhou in September.

"It's not going to be easy. But if you don't move forward, then the alternative, from my perspective, is not particularly promising, either, especially at a time when you have global slowdowns," said Deborah Elms, executive director of Asian Trade Center, a Singapore-based consultancy.

Global trade growth has been roughly the same as global gross domestic product (GDP) growth in the post-crisis period, compared to roughly twice the speed of global GDP expansion before the crisis. The World Trade Organization (WTO) expects global trade growth to remain subdued this year at 2.8 percent, the fifth consecutive year of growth below 3 percent.

Experts have put forward different explanations, citing both cyclical and structural factors, however, they remain unconvincing.

"It's puzzling. We don't have a clear understanding of what's going on really," Elms said.

Song Hong, senior fellow at Institute of World Economics and Politics at the Chinese Academy of Social Sciences, said the decline is largely due to a deceleration in globalization, explained by two factors.

The first is a slowdown in outbound investment and trade as the governments of many countries have tended to focus on local employment in the post-crisis period. The second and more important structural change, Song said, is a slowdown in the globalization process characterized by China as the central link in global manufacturing chain, after such a process has reached a fairly advanced level.

Elms said protectionism is one of the explanations. So is the slowdown of the world's major consumer markets and the fact that some companies are moving production closer to their final markets. However, she said the above still does entirely explain the slowdown.

Nevertheless, experts agree that inaction is harmful and that it is important for the G20, the most representative grouping of the world's major economies, to come forward and move ahead with a proactive agenda.

Song said there is space to jointly facilitate international trade growth by either promoting peripheral agreements targeting certain aspects of international trade, like environmental goods, or promoting regional trade pacts that cover a number of economies.

Others call for efforts to combat protectionism and stay open-minded. Simon Evenett has found that countries including the United States have implemented the most protectionist measures among the G20 economies. Elms said in a recent blog that the United States use of the Trans-Pacific Partnership as a tool to keep China out of the game runs counter to the essence of international trade -- mutually beneficial international division of labor based on comparative advantages.

Sarita Jackson, a U.S. researcher, said people blaming free trade for job losses should instead look at the deeper systemic issues.

The WTO said its members can take a number of steps to use trade to lift global economic growth, "from rolling back trade restrictive measures, to implementing the WTO Trade Facilitation Agreement."

"This agreement will dramatically cut trade costs around the world, thereby potentially boosting trade by up to 1 trillion U.S. dollars a year," said WTO Director-General Roberto Azevedo.

More can be done to address remaining tariff and non-tariff barriers on exports of agricultural and manufactured goods, Azevedo added.

China, the chair of the G20 meetings this year, has advocated efforts to combat protectionism. In particular, it has committed to not devaluating the yuan to stimulate exports.

Despite the challenges, many remain upbeat regarding global trade. The WTO said that the long spell of slow but positive trade growth should not be exaggerated, citing equally slow trade growth between 1980 and 1985. It also said that automobile sales, an early signal of trade downturns, have continued to grow at a healthy pace in developed economies.

China's economic upgrading could be a potential new growth point, Song said, as some labor-intensive industries are expected to move out of China while demand remains in the country, thereby generating potential growth for the future.