War on trade

In his keynote address at the TPM Conference in Long Beach last March, FedEx Chairman, President and CEO Fred Smith railed away at the protectionist tide rolling through global markets. “The problem is not cyclical,” Smith told TPM. “It’s systemic, and it’s spreading.”

If the news of the last several weeks is any indication, the tide that was spreading earlier this year is only growing under the weight of geopolitical conflict and a morass of bureaucratic red tape. In the process, it threatens to derail a U.S. export recovery that has seen outbound trade soar nearly 50 percent since the Great Recession ended in 2009, to a record $1.6 trillion.

Perhaps most at risk are agricultural exports that, in recent years, have been touted as the drivers of the next big U.S. trade boom. From China’s more stringent oversight of U.S. distiller dried grains — a star for containerized export carriers during the past several years — and India’s 11th-hour rejection of a landmark trade liberalization package brokered by the World Trade Organization to lingering trade disputes in China and Mexico over U.S. poultry products, and the tit-for-tat sanctions in a showdown with Russia, the outlook for agricultural staples has rapidly spiraled from bright to, well, uncertain.

The outlook only turns darker in light of JOC.com Senior Editor Mark Szakonyi’s story on rail equipment shortages and network congestion that jeopardize the movement of agricultural products from the Midwest to coastal ports for shipment overseas.

Caught in this turmoil, of course, are capacity-flush ocean carriers that have seen trans-Pacific westbound rates plummet by nearly one-third, to about $640 per 40-foot container, this month compared to a year earlier, according to the World Container Index produced by research and consulting firm Drewry.

On the economic front, the damage is only greater. Each dollar of increased protection results in a drop of 66 cents in GDP, and a dollar increase in tariff revenue can lead to a $2.16 decline in global exports and a 73-cent decline in global income, according to the Organization for Economic Cooperation and Development.

In some respects, it’s ironic that in this age of liberalization — the WTO lists nearly 400 regional trade agreements in force as of mid-June — bilateral trade only seems to be growing more complicated, a throwback to the regular “trade war” headlines of the 1980s and 1990s.

It only gets more complicated when new guidelines are issued with little explanation or solution to meeting them, as was the case when China this month required certification that DDG shipments don’t include an unapproved genetically modified strain — when such a certification program doesn’t exist. It’s the equivalent of a question without an answer.

All this isn’t to say that exports aren’t growing. Indeed, they are — up 3 percent in value through the first six months of this year after a 2 percent climb in 2012. But that’s a far cry from the 15 percent-plus surge in the early years of the Obama administration’s National Export Initiative — so much part of the trade parlance until the momentum came screeching to a halt.

The OECD, meanwhile, sees more ominous clouds on the horizon, forecasting a slowdown in global growth through 2060, in part because of increasingly complex trade relationships. “We face a globalization paradox — countries will be more integrated than ever before, but it may become increasingly difficult to organize the required international cooperation in a more complex multipolar system,” Rintaro Tamaki, the OECD’s deputy-secretary general and acting chief economist, said recently while unveiling a new study, “Policy Challenges for the Next 50 Years.”

For global exporters, the complexity may be just beginning. 

Contact Chris Brooks at cbrooks@joc.com and follow him on Twitter: @cbrooks_joc.


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