Jan 2019: How the Ripple Effect of 2018 will be felt in 2019 and the Silver Lining?

2018 has seen the world rise and fall—with doubt, uncertainty, and, the rare flashes of promise. Global economics has seen the development of machine-learning and artificial-intelligence, paving the way for a fourth industrial revolution, it has witnessed the rise of populist nationalism, and, a colossal threat of a trade war between the United States of America and China. The fear of a second Cold War continues to loom as we welcome 2019. The trade war brings together the two forces of nationalist populism and economic globalization.

It began with China’s alleged manipulation of intellectual property rights and, through IR politics, has come to the claims of USA’s alleged motivations behind the recent arrest of a Huawei official in Canada. The two countries have been increasing tariffs on the trade with the other, making importers and exporters, as well as stakeholders in the later stages of the value chain, pessimistic and underconfident in the future of the international market. Cesar Rojas, a New York-based Citigroup global markets economist, says, in a recent note, “‘Trade divergence’ since 2018 and the ‘Tariffs-Limbo’ into 2019 are likely to keep a high degree of uncertainty and continue to have an impact on trade and investment plans.”

Even as the two countries have declared a truce for ninety-days, expecting to extend deliberations in March 2019, economists claim that the threat of a trade war has only dissipated, not disappeared. “In 2018, the trade war was the dog that barked,” says Chang Shu at Bloomberg Economics. “In 2019, it will bite.” The Bloomberg Global Trade Tracker has been softening, S&P 500 has accounted for a net drop of 6 percent, and, the IMF and the World Bank project that global growth may suffer by 30-40 basis points. The trade war is proving harmful to the economies involved in its orchestration, and the world, in its consequences.

The US economy is suffering because of Trump’s reactionary politics, and the consumers have lost their trust in the economy. In an interview with Moneycontrol, Mayuresh Joshi, Fund Manager at Angel Broking, makes clear, “The real worry in the US is not the falling yields but the inversion of the yield curve, which is clearly showing a lack of confidence in the long term.” There is also the possibility of the US placing tariffs on auto-imports from Europe and Japan, which can only worsen economic relationships between some of the most powerful nations in the world. Small business optimism about economic improvement, in the States, has become lower than in the past two years and companies expect smaller profit gains in 2019.

There is no lack of case studies for the realities of such a toxic trade war. Bloomberg reports, “Already there are casualties. GoPro Inc. will move most of its U.S.-bound camera production out of China by next summer, becoming one of the first brand-name electronics makers to take such action, while FedEx Corp. recently slashed its profit forecast and pared international air-freight capacity.” Another example is Dippin’ Dots LLC, a US-based maker of ice cream, which spent three years entering the Chinese market and opened its first stores in the country in 2018, “only to pay double-digit tariffs on imported dairy products.

Silver Lining for India and Latin America:

Dippin Dots CEO Scott Fischer said if the U.S.-China talks fail and additional tariffs are added, he’d be forced to rethink strategy, supply chains, and wherein the world he expands.”

Latin America has to encounter economic and political challenges in 2019, given a less promising external environment and overlapping political instability at the domestic, regional and international levels. However, a majority of Latin America’s largest economies are now headed by presidents committed to pursuing business-friendly reforms. The expectation of reform has bolstered investor sentiment, supported financial assets and likely encouraged businesses to consider expansions.

With any global disruptive change, recognition precedes adjustment, to ensure the stability of economic factors. India finds itself in the middle of this worldly performance, with its own objectives of economic development and a sectarian political agenda. As Aridam Bhattacharya notes, in Financial Express, “These two seemingly contradictory forces, one of economic nationalism and geopolitical competition that divides, and digital technologies that integrate, is shaping a radical new model of globalization that has huge implications for India…” Indian exports have been taking a hit as a result of the tension, and the possibility of a full-fledged trade war also opens up the risk of currency devaluation, which can negatively affect the country’s growth and development.

But the trade war has also initiated an unprecedented reorganization of the international markets. It is opening up new avenues of global economic relationships, particularly in the interaction of the smaller countries. India has been trading more within Asia and exporting to Latin America, and space has been growing at a rate two times faster than the trade with the developed world. The country has also been bettering its infrastructural support for consumer-oriented technology and should be working on consolidating the agricultural sector for better returns to the farmers and improved performance. Aridam, in Financial Express, ends his article with a wish for India in 2019, that the country initiates more multilateral globalization with greater and more equitable returns while becoming a third pole of the geopolitical architecture. Even as these wishes may seem too optimistic to the common reader, the facts and numbers, indeed, promise the opportunity to India and other developing countries.

The launch of Karavan Free Trade Blog (A Comprehensive blog for Import/Export related information for SME’s)

Common elements can be found in the ways that India, US, and the Latin American countries, all find themselves positioned in the quagmire of this ego battle between the two largest economies of the early twenty-first century.

We, at The KF Trade, understand the value of comprehensive research and are providing SMEs a free platform for engagement with buyers and sellers across international borders along with providing them with relevant information which will make the entire process of import/export quick and transparent.

The ecosystem of the platform can be starkly contrasted to the conventional manner of importing and exporting which seems to be shutting up as the possibility of the trade war progresses.

The platform removes all material barriers that may impinge upon the objectives and profits of the smaller enterprises, and in bringing the Indian market to the world, just as it brings the world to the Indian market, we are only hoping to contribute our bit to the realization of the country’s future optimism and New Year’s wishes.