Towards deeper trade integration: The global trade slowdown & opportunities for Brazil Mark Dutz, Trade & Competitiveness, The World Bank CINDES and CDPP Workshop, July 15, 2016 Based on research by Aaditya Mattoo, Cristina Constantinescu and Michele Ruta, including World Bank Policy Research Working Papers No. 7158 (2015) and 7673 (2016); and a presentation by Aaditya Mattoo to DFID UK, June 2016

Outline What is happening to global trade? Why? What are opportunities for Brazil?

Main messages The global trade slowdown may be explained in part by: maturing of manufacturing GVCs, services trade remains robust the declining pace of goods trade liberalization Possible opportunities for Brazil: new demand for exports from China’s rebalancing learning from new services imports & exports driven by services trade resilience & further services liberalization countering the shift in trade policy attitudes against deeper integration (as suggested by Brexit) by becoming a forceful advocate/champion of deeper trade integration

What is happening to global trade? Question 1 What is happening to global trade?

Trade share in GDP levelled off before great recession Total imports (goods + services) as share of GDP have been relatively flat, especially in China and the US, both pre- and post-crisis

Why has global trade slowed down? Question 2 Why has global trade slowed down?

The trade slowdown is due to manufacturing Goods slowed down rather than services… … due to a slow down in manufacturing rather than commodities

Declining pace of goods trade liberalization also played role in trade slowdown Average applied tariffs in advanced economies and emerging and developing economies (percent) Source: UNCTAD TRAINS. *Simple averages of MFN Applied and Preferential tariffs Note: The data for tariffs does not pertain to a consistent sample of countries over time. Faster trade liberalization in the 1990s relative to the 2000s

What are opportunities for brazil? Question 3 What are opportunities for brazil?

Potential rebalancing from investment to consumption in China is large Source: WDI 2015

Impacts of China’s slowdown and rebalancing: Channels of transmission Slower growth lowers external demand for exports Weaker Chinese demand for commodities could contribute to the downward pressure on global commodity prices China’s rebalancing Rebalancing away from investment towards consumption could benefit goods & services exporters Chinese private consumption becomes relatively more intensive in imports than investment was Shift towards services sectors in China could replace domestic production with increasing imports of other goods If supply responds positively to shifts in relative prices and the new sources of consumer demand from China, rebalancing is expected to have favorable impact on global economy and offset negative effects of slowdown

Exposure to China has led to traditional export contraction… Selected exporters, 2015: Jan-Nov versus 2014: Jan-Nov

..but reversal of fortune: opportunities for goods exporters.. Growth in merchandise exports to China, by share of intermediate goods and consumer goods

… and service exports as China’s services imports surge Indices of China’s import values of goods and services and share of services in total imports, 2011-2015

More broadly, global services trade has been resilient… It declined less during the crisis and has grown faster after the crisis - due to digitization and demographics

New WB STRI Database covers 103 countries …and there is scope for further services liberalization – potentially boosting both services and goods trade New WB STRI Database covers 103 countries Source: Borchert, Gootiiz and Mattoo (2013)