Protectionism casts shadow over stable growth of global economy / Japan should lead multilateral cooperation

The Yomiuri ShimbunThe world economy is finally and fully emerging from the impact of the collapse of U.S. investment bank Lehman Brothers, which is considered a “once-in-a-century financial crisis.”

For the world economy to continue growing stably in the era of globalization, major countries are required to make efforts to cooperate more closely than ever before.

The Organization for Economic Cooperation and Development (OECD) projects that the global economy will grow by 3.7 percent in 2018, up from the 3.6 percent forecast for 2017.

All 45 countries covered by the OECD survey are reckoned to have achieved positive growth in 2017, for the first time in the decade since 2007. This trend should be strengthened.

Curb Trump’s approach

Conspicuous since the financial crisis in 2008 was the phenomenon of “slow trade,” with global trade growing at slower rate than the global economy.

According to the International Monetary Fund (IMF), global trade seems to have grown more than the global economy in 2017, for the first time in three years.

In developed countries such as Japan, the United States and Germany, employment conditions have improved and the upward trends in their stock prices are strong. A virtuous cycle is taking shape, with the underlying strength of major economies prompting expansion in demand and stimulating trade — effects that also benefit emerging market economies.

Seemingly, the global economic outlook looks firm. Underneath, however, many pitfalls lurk.

One cause for concern is an inclination toward protectionism on the part of U.S. President Donald Trump, who advocates an “America First” policy.

Shortly after he took office, the United States withdrew from the Trans-Pacific Partnership (TPP) free trade pact. Meanwhile, he high-handedly made Canada and Mexico, as well as South Korea, renegotiate with the United States over their free trade agreements.

Should the United States forcibly implement unilateral import restrictions, its trade partners will have no alternative but to resort to countermeasures.

Whether the United States wants it or not, it is obvious that such action on its part will invite a situation causing the proliferation of protectionist policy.

Contrary to what Trump may intend, the blow to the U.S. economy — the epicenter of protectionism — would be more serious than to other economies.

The U.S. government should look squarely at the reality that only by fostering reciprocal trade can the United States bring about benefits to its own country.

In protecting free trade, the role to be assumed by Japan is great.

Beware China risk

A broad agreement has been reached on an 11-nation TPP, without the United States, and on a Japan-EU economic partnership agreement. It is important that Japan accelerates coordination with the nations and organizations involved, aiming to quickly sign and put into effect these pacts.

Member nations of both these accords are also major trading partners of the United States. As the proportion of trade conducted within regions covered by the pacts increases, the United States will be pushed into a disadvantageous position.

If these accords produce good results, momentum toward reevaluating multilateral frameworks is likely to grow in the United States.

The lack of clarity about the actual state of China’s economy, the second largest after the United States, is still cited as a major risk to the global economy.

The list of possible triggers for economic turmoil in China goes on and on, including a real estate bubble in urban areas, effectively bankrupt state-run companies being kept afloat, and financial institutions groaning under nonperforming loans.

Chinese authorities are keeping a lid on these problems for now, but if they err in handling such matters, it could lead to a new international financial crisis.

Watch capital movement

It is important for China to go all out to fix the overproduction of steel and other issues as it pledged to do so at the July 2017 summit meeting of the Group of 20 major economies.

China’s economic growth rate, which has shifted to around the middle of the 6 percent range, is in line with government targets. However, some observers have pointed to a lack of reliability in these statistics.

China must do more to share information with other countries, through channels such as the G-20.

In Europe, negotiations over Britain’s departure from the European Union have entered a new stage covering trade. How will the freedom of movement of people, goods and money change? More than 1,000 Japanese companies have operations in Britain, so this issue is not someone else’s problem even for Japan.

From the business world, there are growing heartfelt calls for clarity on even a date when a decision will be made on issues such as the future of tariffs between Britain and the European Union.

To prevent confusion from erupting both inside and outside the EU, Britain and the EU must cooperate fully and speed up negotiations, while also ensuring transparency in this process.

Emerging economies in Asia and South America also face a pressing problem of preparing for a possible withdrawal of easy money by advanced nations.

In the United States, interest rates are expected to be raised about three times in 2018. The IMF and other international bodies must stay vigilant for any signs of capital shortages in emerging economies.

While globalization of the economy brings benefits to each nation, it also raises the speed at which a financial shock in one nation or region spreads, and the size of the repercussions of the shock.

If geopolitical risks rise to the surface, especially in North Korea and the Middle East, the impact would be incalculable.

Many nations are in an important phase in which economic expansion is getting into stride. Not dealing with avoidable shocks before they emerge will lead to serious problems in the future.

The governments of every nation must focus their attention on various risks and devote their full efforts to preventing them from materializing.

(From The Yomiuri Shimbun, Jan. 3, 2018)Speech


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