82
IMPACT OF CURRENT TRADE WAR ON EUROPE AND REST OF THE WORLD Paulo Portas LISBON, OCTOBER 2019
IMPACT OF CURRENT TRADE
WAR ON EUROPE AND REST OF
THE WORLD
Paulo Portas
LISBON, OCTOBER 2019
2
IMF WORLD ECONOMIC OUTLOOKGlobal growth is sluggish: it may rebound in 2020, but risks are rising
Source: IMF, July 2019.
Real GDP growth (%)
IMF WORLD ECONOMIC OUTLOOKGlobal growth is set to moderate in the near term, then pick up modestly
Source: IMF, World Economic Outlook – July 2019.
OECD ECONOMIC OUTLOOKTrade uncertainty dragging down global growth
Source: OECD, Economic Outlook – September 2019. Review since May. Laurence Boone, Chief Economist, OECD.
WB GLOBAL ECONOMIC PROSPECTSHeightened Tensions, Subdued Investment
Source: The World Bank, Economic Outlook – June 2019.
WTO GOODS TRADE BAROMETERRevamped trade indicator shows goods trade to remain weak in Q3
6
Sustained weakness in the barometer index was driven by below trend
values in all component indices. The international air freight (91.4)
and electronic components (90.7) indices showed the strongest
deviations from trend, with readings well below the previous release.
Indices for export orders (97.5), automobile production and sales
(93.5) and agricultural raw materials (97.1) all remained below- trend
although they show signs of having bottomed out. Only the index for
container shipping (99.0) was close to the baseline value of 100.
Source: WTO, August 2019.
WTO PROJECTIONS FOR 2019-20WTO lowers trade forecast as tensions unsettle global economy
Press release – 2019 Trade Forecast, October 1st 2019
7
Note: GDP is measured at market exchange rates. Data for 2019 and 2020 are projections.
Trade and GDP – left axis; ratio of trade on GDP – right axis.
Source: WTO for trade, IMF for GDP, 2019.
World merchandise trade volume and real GDP growth, 1990-2020
-6,0
-4,0
-2,0
0,0
2,0
4,0
6,0
8,0
-15
-10
-5
0
5
10
15
20
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
Volume of world merchandise trade Real GDP at market exchange rates Ratio
LONDON
-3,23%+5,86%
PARIS
-3,12%+14,63%
STOCKHOLM
-2,56%+13,10%
MOSCOW
-1,43%+14,77%
SHANGHAI
-0,99%+26,70%
SEOUL
-1,95%-0,45%
TOKYO
-0,49%+8,81%
HONG KONG
-0,19%+0,76%
FRANKFURT
-2,76%+12,94%
ATHENS
-3,01%+36,24%
MILAN
-2,87%+16,23%
ZURICH
-1,96%+15,75%
MADRID
-2,77%+4,36%
LISBON
-1,35%+3,19%
NEW YORK
-1,86%+11,79%
NASDAQ
-1,74%+19,29%
MEXICO
-1,62%+2,55%
SÃO PAULO
-2,71%+15,19%
BUENOS AIRES
+2,35%+1,58%
STOCK EXCHANGE TURMOIL: facts or perceptions ?
% % at October, 2nd, 2019% current year
Source: El País, Bloomberg8
THE RAPID GROWTH OF WORLD TRADEWorld exports and imports of goods and services (constant 2010 trillion USD), 1970-2018
9Source: The World Bank, 2019.
0
5
10
15
20
25
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Exports Imports
Oil crisis, 1973-74
Treaty of Maastricht, 1993
European Economic Area (internal market), 1994
China joins WTO, 2001
Financial crisis, 2007-2008
10
Source: UNCTAD secretariat calculations, based on the United Nations
Comtrade database, 2018.
Note: The node size and edge width depict export flows as a share of world
gross product. The node/edge colour reflects the commodity versus
manufacture intensity. The direction of edges is clockwise. When the exports
of a given node are less than 5 per cent of its total exports, the edges are not
reported. “Advanced Asia” refers to Australia, Japan, New Zealand, the
Republic of Korea, Singapore, Hong Kong (China) and Taiwan Province of
China.
CHANGES IN GLOBAL TRADEGlobal network of merchandise trade, selected years, 1986–2016
THE NEW SHARE OF WORLD GDPShare of global real GDP PPP (%)
11
The chart above shows the percentage share of world’s real GDP split by continents, and illustrates that the share of
world’s real GDP in the Asian region grew considerably faster than all other continents, from 16.8% in 1960 to 45.2% in
2018. Projections until 2023 show trends being reinforced.
Source: IMF, 2019.
5
18
8
45
21
0
5
10
15
20
25
30
35
40
45
50
1980 1985 1990 1995 2000 2005 2010 2015 2020
Africa North America Latin America and the Caribbean Asia and Pacific Europe
CHINA’S SHARE OF WORLD GDPShare of global real GDP PPP (%)
12
Highlighted number for 2018.
Projections for 2019-2024.
Source: IMF, 2019.
19%
15%
16%
0%
5%
10%
15%
20%
25%
30%
1980 1985 1990 1995 2000 2005 2010 2015 2020
China US EU
OLD PLAYERS AND… CHINASelected WTO Members Merchandise Trade (% global trade)
13Source: The World Bank, 2019.
0,9% 1,1%0,8%
0,6%1,0%
0,2%
1,1%
0,4%0,0%
0,0%
2,0%
4,0%
6,0%
8,0%
10,0%
12,0%
3,6%3,2%
0,8% 0,7%
2,5%
0,2%
2,1%
1,0%
0,2%
11,7%
3,0%
0,9%
2,1%
2,9%
0,2%
2,0%
1,3% 1,2%
1980 2000 2018
14
TRADE VS. WEALTHTrade as the sum of exports and imports of goods and services (% GDP), 1960-2018
Source: The World Bank, 2019.
58
0
10
20
30
40
50
60
70
80
90
100
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
World USA EU Japan China India Brazil
TRADE RISING ABOVE GDP…GDP growth versus merchandise trade volume growth (%)
15
Source: The Economist, 2018.
… BUT NOT ANYMORE?A slowdown in 2012-2016 and a good surprise in 2017
Ratio of world merchandise trade volume growth to world real GDP growth
16
Historically, world merchandise trade volumes have grown around 1.5 times faster than world real GDP at market exchange rates. The
ratio of trade growth to GDP growth (referred to as the "elasticity of trade with respect to income") rose above 2.0 in the 1990s, but fell
back to 1.0 in the five years following the financial crisis (2011-2016). This elasticity measure rebounded from 0.8 in 2016 to 1.5 in
2017, which is close to the historical average. Stronger trade growth relative to GDP growth was expected to continue at least into
2018, barring major economic shocks.
Source: WTO, 2018.
HOW PROTECTIONISM
SURPRISED GLOBALISATIONProtectionist versus liberal measures adopted in the world
17
Source: Global Trade Alert, 2019.
Number of interventions per year
November 2008 – August 2019
Top 5 harmful policy instruments
Top 5 liberalising policy instruments
18
US PROTECTIONISM STANDS OUTNumber of protectionist interventions by selected countries
1959
956
1560
690759
700 733
564
361
140243
127 149100 130 109
0
500
1000
1500
2000
2500
USA India Germany Italy UK Brazil Argentina China
2009-2019 2018-2019
Source: Global Trade Alert and Twitter, 2019.
21
3339
20
102
24 2620
25
124
2216
23
43
85
31
1518
15
154
Argentina Brazil Canada China EU India Japan Korea Mexico USA
Complainant Respondent
THE WORLD TRADE ORGANIZATION
AS A BATTLEFIELDDispute settlement by member, 1995-2019
19Source: WTO, 2019.
MODERN WARFARE: TRADE WARS
20
September 5, 2019
US and China agree to restart trade talks next month
The visit to Washington by top Beijing officials is set for early
October.
Stock markets in Asia welcomed the news. The CSI 300
benchmark of Shanghai- and Shenzhen-listed stocks closed up 1
% and Japan’s Topix ended the day 1.8 % higher.
In August, Mr Trump ramped up the trade war dramatically with
China, imposing 10% tariffs on another US$300 billion of Chinese
goods starting September 1. China also moved to retaliate with
up to US$185 billion in tariffs on US goods.
If nothing is agreed, on October 1, the $250bn of Chinese goods
that have already been subject to 25% levies will see those tariffs
rise to 30%, further straining both economies. In mid-December,
a new batch of Chinese imports, worth $156bn, will be hit by 15
% tariffs.
Source: FT, 2019.
USD 550 bn
on China
USD 185 bn
on the US
WINNERS AND LOSERS OF THE US-CHINA TRADE WARSo far, tariffs affect only a small proportion of global trade and emerging markets may benefit from the
dispute to trade more with China or the US
21Source: FT, 2018.
If U.S. firms can see no end of the trade war, they will
reorganize their supply chains and locate low-cost production
in “safe” countries like Vietnam, Malaysia, Indonesia, Mexico,
and Peru. They will not move much production back to the
United States.
Likewise, Chinese firms that buy high-tech industrial inputs
from the United States will move some of the production to
“safe” countries like South Korea, Canada and Australia. But
the Chinese government will strongly encourage Chinese firms
to produce many of these inputs at home, even though the
cost will be much higher.
The EU could be one of the biggest losers of the trade war.
PURCHASING POWER PARITYTHE ASIAN CENTURY IS SET TO BEGIN
22
THE WORLD’S LARGEST COMPANIES
Company Revenue ($M) Country
General Motors 126,974 USA
Ford Motor 96,933 USA
Exxon 86,656 USA
IBM 63,438 USA
General Electric 55,264 USA
Mobil 50,976 USA
Altria Group 39,069 USA
Chrysler 36,156 USA
DuPont 35,209 USA
Texaco 32,416 USA
Company Revenue ($M) Country
Walmart 500,343 USA
Sinopec Group 348,903 China
R. D. Shell 326,953 The Netherlands
China N. Petrol. 326,008 China
State Grid 311,870 China
Saudi Aramco 265,172 Saudi Arabia
BP 260,028 UK
Exxon Mobil 244,582 USA
Volkswagen 244,363 Germany
Toyota Motor 242,137 Japan
23
The world’s 500 largest companies generated $32.7 trillion in
revenues and $2.15 trillion in profits in 2018. Together, this year’s
Fortune Global 500 companies employ 69.3 million people
worldwide and are represented by 34 countries.
Source: Fortune Global 500, 2019.
1990 2019
➢ For the first time, since 1945, there are more Chinese firms in the
world’s top 500 ranking, than American.
➢ In global value (assets), Americans represent 28.8%, Chinese firms
represent 25.6%.
➢ 6 out of 10 fastest companies are Chinese.
THE WORLD’S LARGEST BANKS
Bank Assets ($M) Country
Industrial & Commercial Bank of China Limited 4,027,032 China
China Construction Bank Corporation 3,376,177 China
Agricultural Bank of China Limited 3,287,025 China
Bank of China Limited 3,091,893 China
China Development Bank 2,352,265 China
BNP Paribas SA 2,335,320 France
JPMorgan Chase Bank National Association 2,218,960 USA
MUFG Bank Ltd. 2,032,735 Japan
Japan Post Bank Co Ltd 1,882,955 Japan
Crédit Agricole SA 1,858,787 France
24
Source: Bankers Almanac and Accuity, August 2019.
2019
THE NEW ECONOMY MEANS…
25
The world’s largest
taxi company owns
no cars
The largest
accommodation
provider owns no
real estate
The most popular
media provider
creates no content
The most valuable
photo company
sells no cameras
The largest movie
place owns no
cinemas
The largest
software vendor
doesn’t write the
apps
The most valuable
retailer has no
stores*
(*Amazon Go may change this)
The largest phone
company has no
telco infrastructure
E-WORLD: GUESS WHO?Market capitalization of the largest internet companies worldwide
26
In billion US dollars. As of September 3rd 2019
Note: Ant Financial projected valuation expressed in view of its potential IPO.
Source: YCharts, 2019.
1 038
930
885
811
521
449
404
150
134
127
126
Microsoft
Apple
Amazon.com
Google/Alphabet
Alibaba
Tencent
Ant Financial
SalesForce.com
Netflix
PayPal
27
INTERNET USERS IN THE WORLDAsian dominance in the internet and Africa’s huge potential
28Source: The World Bank, 2019.
Asia49%
Europe17%
Africa11%
Latin America
and Caribbean
11%
North America
8%
Middle East4%
Oceania1%
Internet usage distribution by region
2062
705
465
438
345
164
28
0 500 1000 1500 2000
Asia
Europe
Africa
Latin America &Caribbean
North America
Middle East
Oceania
Internet users by region (in million)
56%
79%
20%
57%
78%
48%
88%
0% 50% 100%
Individuals using the Internet (% ofpopulation)
THE GLOBAL COMPETITION FOR DATA
29
Source: Le Monde, 2018.
Sources of EU debate:
• Tax digital
services?
• Filter or remove
copyrighted
material from
websites (Article
13)?
• Tackle fake news?
• Monitor hate
speech?
• Reinforce
cybersecurity
against terrorism?
• Tackle political
campaign
manipulation?
30
ONLINE PLATFORMS: AMERICA VS ASIAMARKET VALUATIONS In billions US dollars
Source: Dr. Holger Schmidt (TU Darmstad/Netzoekonom.de) December 2018
Source: World Intellectual Property Organization, Nikkei,2019.
The WIPO finds that China now accounts for 21% of global patent applications. That's right
behind the long-time leader US at 22% in 2018, down from 29% in 2017.
If current trends continue, China could surpass the US for patent filings within 2 years. Just
a decade ago, China was ranked 7th worldwide for number of patent applications.
32Source: UNESCO, 2018.
INNOVATION: R&D SPENDING BY COUNTRYThe circles show the amounts countries are spending on R&D in PPP$. About 10 countries
account for 80% of spending.
33Source: OECD, 2019.
CHINA’S GAINING MOMENTUMGross domestic spending on R&D. Total, % of GDP, 2000 – 2018.
GLOBAL CHALLENGESNATURAL RESOURCES FOR A NEW ECONOMY
The case of rare earths
Applications
Source: UNCTAD, US Geological Survey, Statista, 2018.
34
ESTIMATED CHANGES IN 2050The US and Europe losing ground to emerging Asia
35
GLOBAL LEADERSHIP IN TRANSITIONBRICS catching up with the Group of Seven (G7)
36
The former chairman of Goldman Sachs
Asset Management, who famously coined
the BRICS in 2001 to refer to the fastest
growing emerging markets, said the G7
can't be taken seriously when it excludes
China, whose economy is set to overtake the
euro zone in 2018, and India, whose GDP
already eclipses Italy's.
Since the 1990s, BRICS nations have
doubled their share in global economic
output.
According to the BRICS Trade and Economic
Research Network, these 5 countries
account for 43% of the world's population,
18% of global trade and attract 53% of
global financial capital.
China’s economy is now bigger than
Brazil, Russia, India and South Africa
combined, and in the not too distant
future, it could become twice as big.
BRICS will overtake the G7 by around
2035 — simply because of China’s
sheer size and likely ongoing
performance.
Source: IMF, 2018.
WORLD’S FASTEST-GROWING ECONOMIES(Seven economies set to grow around 7% through 2020s, with surges in per-capita GDP)
37
Source: World Bank, International Monetary Fund, United Nations data / Bloomberg / Standart Chartered Bank
4800
6900
2800
4400
10400
5400
5700
1300
3100
852,7
1800
2500
1900
1600
Myanmar
Philippines
Ethiopia
Côte…
Vietnam
India
Bangladesh
2018
RISK REGIONS# PERSIAN GULF # SOUTH CHINA SEA
Oil Tankers’ Tracking Signals Are Vanishing in the Strait of
Hormuz
# KOREAN PENINSULA # KASHMIR
US military raised frequency of transport movements
through the strategic waterway
South Korea’s Moon calls for peace with North Korea by 2045 India revokes Kashmir's special status
39Source: The Global Risks Report, WEF, 2019.
THE BIGGEST RISKS
THE WORLD FACESWORLD ECONOMIC FORUM 2019
40
Source: The Global Risks Report, WEF, 2019.
SHORT-TERM RISK OUTLOOKPercentage of respondents expecting risks to increase
64
67
69
72
73
80
82
85
88
91
Major risks include a growth recession
in China, a rise in global long-term
real interest rates, and a crescendo of
populist economic policies that
undermine the credibility of central
bank independence, resulting in
higher interest rates on safe,
advanced-country government bonds.
US TRENDS IN 2019Economic slowdown and the need for a monetary push
Lower US bond yields and a weaker dollar
will be welcome in emerging markets where
governments and companies have borrowed
in USD. At the margin, it may also encourage
the European Central Bank and other large
monetary authorities to keep policy loose.
The US economy remains strong. Risks
come mostly from the outside: trade
tensions, EU and China slowdowns,
disorderly Brexit.
The IMF expects US economic growth to slow
from 2.9% to 2.5% in 2019 due to tighter
financial conditions and a fading fiscal
stimulus.
41
The Fed is more conservative, expecting
2.3% in 2019. Its mandate is on stable
prices (2% inflation) and maximum
employment. On 30/1, Jay Powell,
Chairman of the Fed announced a U-turn in
US monetary policy: interest rate rises are
put on hold given tepid inflation and risks to
global growth. Source: FT, IMF, OECD and Twitter, 2019.
3,1
2,1
-10
-8
-6
-4
-2
0
2
4
6
8
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
IS THE ECONOMY GREAT AGAIN?
42
Source: US Bureau of Economic Analysis, 2019.
Real GDP (% change from previous period), seasonally-adjusted at annual rates
Real GDP grew at 2.1% in Q2, after increasing at 3.1% in Q1.
MORTGAGE DELINQUENCIES ARE DOWN, BUT
CONSUMERS ARE BEHIND ON OTHER DEBTBorrowers are struggling to pay back auto loans and student loans.
43Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax, 2019.
-3,1%
-3,8%
-4,2%
-4,4%
-2,8%-3,1%
-3,2%
-2,8%
76%78% 78%
93%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-6,0%
-5,0%
-4,0%
-3,0%
-2,0%
-1,0%
0,0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Fiscal Deficit (-) or Surplus (left axis) Net Exports of Goods and Services (left axis) Debt Held by the Public (right axis)
44
BUDGETARY OUTLOOKFISCAL EXPANSIONISM
Source: US Congressional Budget Office, 2019.
Pro
jecti
on
s
Ob
am
a A
dm
inis
tra
tio
n
HOW DID WE GET
HERE?
Source: US Department of the Treasury, 2019.
Government borrowing has ballooned
as a percentage of GDP over the last
decade.
It started during the Great Recession,
when the government passed several
stimulus measures to resuscitate the
economy.
The national debt should have
subsided as tax revenues recovered,
but massive tax cuts in 2017 only
added more red ink.
All that debt is only sustainable if
interest rates remain as low as they
have been on account of the Federal
Reserve's prolonged strategy of
buying US Treasuries in order to
stimulate the economy.
But an interest rate shock would
swamp many deeply indebted
companies in short order.
“IT’S THE ECONOMY, STUPID”
46Source: Bruce Mehlman, 2019.
DEGLOBALIZATIONfrom 1914 until 1947
Average Tariff Rates on Total Imports, 1830-2010
Great Depression
GATT’47
Source: Albert H. Imlah, Economic Elements, 2011.
47
“The Smoot-Hawley Tariff Act was initially
to safeguard US farmers from external
agricultural products.
Despite the good intentions behind it, the
act did not end up well at all. American
imports fell from $1.33bn in 1929 to
$390m in 1932, and exports decreased
from $2.34bn in 1929 to just $784m in
1932.
The first phenomenon was caused by the
higher level of American duties that
increased foreign companies’ costs and
consequently pushed up the price of their
products.
The latter was due to the retaliation of
America’s trade partners, who increased
their own tariffs on American goods – the
subsequent fall in US exports led to fewer
jobs in the USA.”
Source: Protectionism in America: An Overview, 2017.
THE CONSEQUENCES OF PROTECTIONISMin the past…
48
OTHER FORMS OF PROTECTIONISM
The Buy American Act (1933)
applies to all US federal
government agency purchases
of goods valued over the micro-
purchase threshold, but does
not apply to services.
The Buy America Act (1983)
provisions are applied to
transit-related procurements
valued over USD 100,000, for
which funding includes grants
administered by the Federal
Transit Authority (FTA) or
Federal Highway
Administration.
(Both these have exceptions, exemptions
and waivers, namely by executive decision.)
49
COULD THE iPhone BE “MADE IN USA”?
• The elements known as rare earths would need to come primarily from
China, which produces 85% of the world’s supply.
• Neodymium is needed for its magnets, like the one in the motor that
makes the phone vibrate and the ones in the microphones and speakers.
• Lanthanum, another rare earth, goes into the camera lens.
• Hafnium, a metal that is not a rare earth and is rarer than most of them,
is essential for the iPhone’s transistors.
• In other words, “no tech product from mine to assembly can ever be made
in one country”, says David Abraham, author of The Elements of Power.
An iPhone has about 75
elements in it, or 2/3 of the
periodic table. Even just
the outside of an iPhone
relies heavily on materials
that are not commercially
available in the US.
Source: MIT Technology Review, Konstantin Kakaes, 2016.
The Periodic Table
50
GIVE ME YOUR FUTURE MILLIONNAIRESHow immigration boosts capitalism
Immigrants and their children
have founded 45% of the U.S.'
Fortune 500 companies
Fortune 500 companies
founded by immigrants or
their children employ 13.5
million people
On average, they employ 11%
more people than the average
Fortune 500 company with a
nonimmigrant founder
The share of successful US
companies that have
immigrant founders is
growing, despite the Trump
Administration making it
more difficult for immigrants
to come to the US
Source: New American Economy Research Fund, 2019. 51
55%25%
20%
THE COMPREHENSIVE AND PROGRESSIVE AGREEMENT FOR
TRANS-PACIFIC PARTNERSHIP
On 8 March 2018 in Santiago, Chile, the CP TPP was formally
signed by 11 countries, making it the third largest free trade area
in the world by GDP (12% of world GDP), after NAFTA and the EU.
Critics:
• CPTPP may only benefit developed economies and large
companies (opening up to foreign markets)
• Higher exports to do not mean necessarily more
development (need high content of domestic value-added)
• Labour standards may lead to growth in informal sector 52
What are some key provisions?
• The deal requires 75% of auto content to be made
in North America to qualify for tariff-free
treatment. Roughly 40-45% of the content must be
made by workers making at least $16 an hour.
• Canada agreed to lift some rules that hindered US
exports of dairy products.
• The deal is also subject to a review every 6 years,
at which point the US, Mexico, and Canada can
decide to extend the USMCA.
USMCAA key pledge of Trump’s campaign, NAFTA was revised after one-year-long negotiations
Source: Twitter, August 2018. 53
November 30th 2018. US President Donald Trump and leaders from
Canada and Mexico have signed the successor to the NAFTA.
• There are new sections governing digital trade,
including a ban on rules that would require firms to
store data in specific countries.
• Pharmaceutical companies won longer patent
protections for certain kinds of medicines.
• The three countries committed to review the deal
every six years, deciding whether to extend its 16-
year duration.
THE GREAT AMERICAN POWERShare of currencies in global foreign exchange reserves from 2000 to 2018
54
0%
10%
20%
30%
40%
50%
60%
70%
80%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
U.S. dollar Euro Pound sterling Japanese Yen Chinese renminbi Other currencies
Source: IMF, 2019.
THE GREAT AMERICAN POWERThe US spends more on Defense than the next seven countries combined
55
POLITICAL STRESS AND RISK
56Source: Vinciamo, 2019.
Brexit
Tension
with
Russia
Migration
Tension
with
Turkey
Terrorism
Growth
Populism
Demography
Sovereign debt
Energy
dependency
East
back to
the East
Separatisms
57
EU ECONOMIES GROWING AT DIFFERENT SPEEDS
-0,20
-0,1
-0,1
0
0,2
0,2
0,2
0,2
0,2
0,3
0,4
0,5
0,5
0,5
0,5
0,7
0,7
0,7
0,8
0,8
0,8
0,8
0,8
0,8
1
1,1
1,3
United Kingdom
Germany
Sweden
Italy
EU28
Belgium
Croatia
Austria
Slovenia
France
Estonia
Spain
Netherlands
Portugal
Finland
Czechia
Ireland
Latvia
Bulgaria
Denmark
Greece
Cyprus
Lithuania
Poland
Romania
Hungary
Malta
Data for LU and SK not available.
Source: Eurostat, September 2019.
Real GDP growth (in %), 2019 Q2
Champions
Laggards
Non satisfactory
Satisfactory
58
GERMANY’S CAR INDUSTRY DEADLOCK
Source: Financial Times, 2019.
59
GERMAN ECONOMY SHRINKS
ON RISING TRADE HEADWINDS
Source: Financial Times, 2019.
60
GERMANY’S MANUFACTURING SECTOR
STRUGGLES
Source: Financial Times, 2019.
61
GERMAN EXPORTS TO THE UK TRACK
THE UPS AND DOWNS OF BREXIT
Source: Financial Times, 2019.
62Impact in a 15-year horizon.
Source: The Guardian, November 28th 2018.
THE IMPACT OF THE UNCERTAINTY OF BREXIT IN THE ECONOMY (1)
UK significantly worse off under all Brexit scenarios…
63Source: Financial Times, August 2019.
THE IMPACT OF THE UNCERTAINTY OF BREXIT (2)THE UK ECONOMY CONTRACTED IN THE SECOND QUARTERQuarter-on-quarter % change
“WHATEVER IT TAKES”ECB's benchmark interest rates
64Sources: European Central Bank, 2019.
FDI INFLOWS TARGET MOST COMPETITIVE
ECONOMIES
65Source: UNCTAD, World Investment Report, 2019.
Foreign direct investment inflows, top 20 host economies 2017 and 2018 (bn USD)
Africa’s young and growing population can become a powerful
growth engine for the continent – provided there is an
investment in education, health care and welfare. Africa’s
population growth will account for approximately 58% of the
global increase between 2018 and 2050.
66Source: World Population Prospects, 2019.
AFRICATHE NEW DEMOGRAPHIC GIANT
Source: Twitter, 2019.
GETTING (SERIOUSLY) OLDER
67
Population median age (years)
Source: European Parliamentary Research Service, 2013.
EUROPE AND THE REST OF THE WORLD
68Source: Bill and Melinda Gates Foundation, 2019.
By 2100, it’s projected that nearly half of the world’s children aged 0-4 years old
will be in Sub-Saharan Africa
PRODUCTIVITY IS FAILING IN DEVELOPED ECONOMIESAverage growth (output per hour) in each decade
69
Source: The Conference Board / FT
WHY “OLD EUROPE” MUST CARE ABOUT TAX COMPETITIVNESSEuropean Country Rankings on the 2019 International Tax Competitivness Index
Source: 2019 International Tax Competitivness Index70
71
ELECTRONIC BATTERIES: EU SEEKS COORDINATION
TO PROTECT THE AUTOMOBILE INDUSTRYIn 2017, 5% of cars had an electronic battery (4.5 M units); in 2030, the number will reach 48% (50 M)
Source: Le Monde, 2019.
Electronic batteries production capacity to power vehicles,
2018 (gigawatt hours)
Market share by company (home country), 2017
A powershouse under foreign control
Factories in Europe, according to nationality
NORD STREAM 2:
EXTENDING RUSSIAN ENERGY DEPENDENCY
72
In 2020, the Nord Stream 2
pipeline—which will enable a big
increase in direct exports of
natural gas from Russia to
Germany, without transiting
through other countries—is likely
to become operational.
Some EU countries have been
under pressure from the US not
to go ahead with the project,
because it may have a negative
impact on Ukraine, increase the
EU's reliance on Russian gas
and make eastern European
countries more exposed to
Russia cutting off supplies for
political reasons.
The pipeline still needs one
construction permit from
Denmark. It is meant to ship 55
billion cubic meters of gas a
year to Germany and is backed
by five Western European
companies — Austria’s OMV,
Anglo-Dutch Shell, France’s
Engie and Germany’s Uniper
and Wintershall.
Source: Ipsos Global Trends (2016), The Global Risks Report – WEF, 2019.
LIFE PROSPECTS
73
74
2018 GLOBAL CARTEL FINE LEVELS
Source: Global Cartel Enforcement Report, Allen & Overy,2019.
75Source: Eurostat, 2019. Data for 2017.
FAR FROM THE 3% PLEDGE BY 2020R&D expenditure as % of GDP. Two thirds spent in the business enterprise sector.
EU TRADE AGREEMENTSTrade for all: 40 trade agreements with 70 countries
76Source: European Commission, 2019.
Trade and Investment
Signed on 30 June 2019.
99% tariffs eliminated. 65%
import duties eliminated at
entry into force; remaining
gradually over 10 years.
EU-MX Trade Agreement
Political agreement on April
21st 2018. Full legal text to
be finalized by year end.
Customs, climate-change
and tackling corruption as
part of the deal.
EU-Mercosur FTA
Negotiations started in 1999 and
resumed in 2016, after long
pause. Agreed in principle in June
2019. Removes majority of tariffs
on EU exports (saves €4bn in
duties) and preserves 355 EU
geographical indications.
EU-China Investment Agreement
Negotiations started in 2013, to
remove market access barriers to
investment. It will replace bilateral
investment agreements.
Last round in June 2019, in
Beijing. Next to be defined.
EU-AU Trade Agreement
Negotiations launched in
June 2018. The EU is
Australia’s 2nd biggest trade
partner. Farming and
geographical indicators are
pending topics. Last round in
July 2019.
Free Trade Agreement and
Investment Protection Agreement
The agreement with Singapore
removes nearly all customs duties
and gets rid of overlapping
bureaucracy, stimulates green
growth and promotes investment.
Signed on October 19th 2018.
EU-South Korea Trade Agreement
(Modernization)
Agreement signed in 2011.
Amended in 2014 to allow Croatia
to benefit from the deal. All import
duties removed, since July 2016.
EU-Chile Trade Agreement
(Modernization)
The EU and Chile concluded an
Association Agreement in 2002,
which includes a comprehensive
Free Trade Agreement.
Renegotiation was launched on
16/11 2017 in Brussels. Ongoing.
TRANSATLANTIC TRADE
AND INVESTMENT PARTNERSHIPAn agreement in focus: the EU-US economic relationship (TTIP). Suspended.
Transatlantic Trade and
Investment Partnership (TTIP)
Towards zero tariffs, zero non-
tariff barriers, and zero
subsidies on non-auto industrial
goods? Negotiations stopped
until further notice at the end of
2016.
Source: European Commission, 2018.
On the EU side, progress has also been made on
facilitating imports of U.S. soya beans. They now
meet the technical requirements to be used in
biofuels in the EU, a decision that will further
expand its market opportunities in Europe.
The Commission is also clear that the conclusion
of negotiations on the elimination of industrial
tariffs is dependent on the US lifting their current
measures on EU steel and aluminium, in place
since June 2018.
At just under 2%, average customs duties
between the EU and the US are generally low. But
the average hides a different situation for
individual products:
• Over half of EU-US trade is not subject to
customs duties.
• Most of the rest faces widely differing duties,
ranging from 1- 3% for basic goods, such as
raw materials, and 30% for goods like clothes
and shoes.
• Some customs duties are so prohibitively high
they effectively cut off any trade; for instance,
the US duty on raw tobacco is 350% and over
130% for peanuts.
• In some cases, US and EU duties are different
even on the same product. For example:
• for cars:
EU duty on imports from the US is 10%
US duty on imports from the EU is only 2.5%
• for train carriages:
US imposes a 14% duty on imports
EU charges only 1.7% on imports from the US.
EU-CANADA: CETA IN A NUTSHELLEU-Canada trade deal removes barriers and fuels growth
78
Source: European Commission, 2019.
Main categories of goods traded
EU-JP: Cars (17%), Pharma (13%),
Industrial machinery (13%),
Optics (9%), Electronics (5%)
JP-EU: Cars (24%), Industrial
machinery (24%), Electronics
(14%), Optics (8%), Chemicals
(3%).
Examples of tariff reductions
JP reduces tariff imports in wines
(15% to 0%), pork meat (4.3% to
almost 0%) and cheese (up to
29.8% to 0% in 15y). The EU
reduces import tariffs in cars
(from 10% to 0% in 7y).
EU-JAPAN: TRADING CARS FOR CHEESEThe Economic Partnership Agreement is landmark in the fight against protectionism
December 8th 2017
Negotiations were finalised.
The trade agreement will:
• Remove trade barriers;
• Help shape global rules in
line with high standards;
• Send a powerful message
against protectionism.
July 17th 2018
The biggest trade agreement
ever negotiated by the EU is
signed in Tokyo. The trade zone
covers 600M people, 37% of
global trade and 28% of global
GDP.
79Source: European Commission, 2018.
80
THE EU, AN ECONOMIC SUPERPOWER
Source: Foreign Policy, 2017.
THE MOST RAPID SHIFT
IN THE WORLD’S ECONOMIC CENTER OF GRAVITYEvolution of the earth’s economic center of gravity (AD 1 to 2025)
81
The economic center of gravity is calculated by weighting locations by GDP in 3 dimensions and projected to the nearest point on
the earth’s surface. The surface projection of the center of gravity shifts north over the course of the century, reflecting the fact that
in 3-dimensional space America and Asia are not only “next” to each other, but also “across” from each other.
Source: McKinsey Global Institute analysis using data from Angus Maddison; University of Groningen, 2018.
IMPACT OF CURRENT TRADE
WAR ON EUROPE AND REST OF
THE WORLD
Paulo Portas
LISBON, OCTOBER 2019
