Why are leaders racking up air miles?
- 9 July 2014
- From the section Business
The US and China are holding their Strategic & Economic Dialogue with US Treasury Secretary Jack Lew flying to Beijing. The Americans are following the visit of German leader Angela Merkel to China. The British Chancellor, George Osborne, is in India and the Japanese Prime Minister, Shinzo Abe, is in Australia.
What does the slew of leaders' visits to Asia imply? It's fairly apparent - a need to kick-start trade and investment, particularly in the part of the world that is growing the fastest.
They are having to go it alone because the multilateral trading system that had opened up countries such as China and India in the past few decades is stalling. Progress toward opening up markets for trade on equal terms for all countries, which is the mandate of the World Trade Organization, has largely stalled and thus countries are making their own agreements.
It's why the EU and US are negotiating the Transatlantic Trade and Investment Partnership (TTIP) and the US and Pacific Rim countries are discussing the Trans-Pacific Partnership (TPP).
Those regional agreements also take time, and thus leaders are accumulating air miles as they seek to agree bilateral deals. Such deals have always been struck, but there is now a greater urgency as, since the financial crisis, countries have been seeking new markets and consumers to bolster their fragile recoveries.
In addition, although the WTO predicts that global trade growth will be higher this year than last year, that isn't saying much, since 2014 will still see trade expand at a slower pace than normal. World trade is expected to grow by 4.7%, which is below the 20-year average of 6% in the years preceding the global financial crisis.
Worryingly, the WTO also finds that the G20 major economies imposed 112 new measures restricting trade between November 2013 and May of this year. In fact, since the global crisis, despite the pronouncements of cooperation, 1,185 restrictive measures have been imposed since October 2008, with only 251 having been removed so far.
World trade had been outpacing global economic growth by some two percentage points and served as an engine for the global economy for much of the past half century. Opening up has contributed to the rise of emerging economies and their fast growth since the early 1990s, which has halved global poverty.
Investment is also accompanying trade, as trade these days is more than just selling bread in exchange for wine. Instead, it's big companies investing in several countries around the world in disaggregated supply chains before products are sold on to final markets.
Richard Baldwin of the Geneva Institute describes 21st Century trade, particularly regional trade, as "made-everywhere-sold-there" goods versus the 20th Century's "made-here-sold-there" goods. Estimates put the share of trade that is conducted by different parts of the same company, known as intra-firm trade, at more than half of all international trade.
So trade and investment are more inter-linked than ever. And there are apparent needs and complementarities. For instance, India is in need of investment funds for infrastructure such as rail, while the British government has announced that its export finance body will provide a £1bn credit line.
Both the US and China could use growth-supporting measures that are not overly reliant on credit, so there is a lot of scope for bilateral agreements that can boost trade and investment. But it's a complicated relationship.
Ever since the Obama administration added an "&" and made the summits the Strategic & Economic Dialogue, the agenda is appropriately broader than just economics for these two nations that can determine rather a lot for other countries.
Cyber-security, the value of the renminbi, maritime disputes in Asia, trade agreements, and where each nation stands in terms of their economic policies - the US Fed tapering and debt ceiling as well as China's progress since the Third Plenum of reforms were announced - are all on the agenda.
The US-China Strategic & Economic Dialogue is to be a "reset" of relations between the world's two largest economies. Recall how that worked for US-Russia, though, and expectations should be adjusted accordingly for the outcome of this week's summit.
Of course, it's not just these countries as most official visits are more complex than just bartering for trade and agreeing billions in investment - despite the fairly predictable headlines to come after each of these trips that help to justify the cost of those air miles.
Face-to-face meetings can help and there really is a lot to sort about the state of the world economy and trade.