Interest rate cuts by major central banks and geopolitical developments in the Middle East dominate economic and market news and analysis. But there are factors that will affect global trade and, consequently, the economic outlook to an even greater extent.
In its analysis, Capital Economics identifies the 5 most important ones. And if we examine them carefully, we will see that, based on them, the future is not particularly optimistic.
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China’s Oversupply
China’s rising industrial output, combined with weak domestic demand, is creating a surplus of supply that must be channeled into external markets. The tsunami of Chinese exports is both easing global inflationary pressures and putting significant pressure on companies in other countries. With Chinese products mainly reaching European markets, European industries are paying the highest price.
2. US trade policy
Regardless of who wins the US presidential election, the US and China will remain on a path of divergence and conflict. The US trade deficit with China has widened further since 2016, when Donald Trump was elected. This means that tariffs and other measures to restrict Chinese imports should be considered more than a given.
3. The East Coast Strikes
The most immediate threat to global trade is a potential strike by longshoremen along the U.S. East Coast and Gulf Coast. Negotiations between employers and unions over wages and automation collapsed in June, and coast-wide strikes have been threatened if no agreement is reached by October 1. More than 4 percent of the value of global merchandise exports are shipped to East Coast and Gulf Coast ports, and more than 3 percent of global imports are shipped from them, with Latin American imports particularly exposed.
Attacks along the coast would be so damaging that they would potentially force the president to intervene — albeit at an electoral cost.
4. The cost of sea transport
Fares have eased in recent weeks but are still up nearly 60% since the start of the year, leaving them at twice pre-pandemic levels.
The Red Sea crisis played a decisive role. Only a ceasefire agreement in Gaza could significantly change the situation.
5. Slowing down processing
While lower interest rates and a weaker dollar are helping global trade, the near-term outlook remains bleak. In real terms, exports of goods have not increased in either 2022 or 2023. This year, rising Chinese exports are being offset by stagnant US exports and declining exports from other major economies. More worryingly, manufacturing in most of the world is slowing, meaning we will see orders fall further.