Nikolaus Lang says there are three numbers you need to know to understand why trade growth is likely to be sluggish through the end of the decade: 100, 300 and 1,000.
Lang, a Munich-based managing director and senior partner with the Boston Consulting Group, working with three others at the highly regarded consultancy, came out with an article on the eve of the World Economic Forum, the annual gathering of the world’s global and globalist elites in Davos, Switzerland.
I, for one, hope the prediction is wrong. You should, too.
In fact, you should hope my less forward-looking prediction of two years of trade malaise, which I posted quite coincidentally as BCG was releasing its findings, is either wrong, too, or failing that, at least closer to right.
What caught my attention was that BCG was seeing the same dark clouds hovering over our tomorrow that I saw. Well, more accurately, that’s why the email from the public relations firm about the report, Protectionism, Pandemic, War and the Future of Trade, caught my attention.
Before I dig into the bad news, let me say that it’s not all bad news for the United States. More on that in a moment.
The company’s prediction is significant because, since the end of World War II and the dawn of what became the World Trade Organization, since the creation of the World Bank, the World Health Organization and the United Nations, since an unprecedented chiseling away at abject poverty in the decades that have followed, trade growth has almost always outpaced global GDP growth.
This is now in doubt, largely due to protectionist measures running amuck across the globe, including in the United States, but also in the immediate term due to Covid-19 and the Russian invasion of Ukraine.
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While those who fail to see the enormous benefits trade has delivered to the global economy, including the current and previous occupants of the White House, here’s what we can expect if the Boston Consulting Group’s forecast proves correct, in my estimation:
Fewer people will have access to the food they need, the potable water they need, the vaccines they need, the prenatal care that could ensure the health of their newborns, the internet and the information treasure trove to be found there, and the creature comforts of which they dream.
And why, from the perspective of the United States, the primary global superpower the last three decades, is this the case? Here’s why:
All so we can “bring back manufacturing jobs,” most of which no one really wants, many of which were never here, to a country that can’t fill its current job openings anyway and doesn’t want to let in immigrants who would help solve that problem.
Back to those three numbers, which I found watching a video I on Lang’s LinkedIn profile.
“One hundred is the decline in trade between the U.S. and China,” Lang tells his interviewer, “$100 billion less trade by the end of the decade.”
This is, of course, tied to the tariffs on roughly $350 billion in U.S. imports from China put in place by former President Donald Trump and kept in place by his successor, President Biden, as well as well as supply chain shifts, most noticeably to Vietnam, tied to the challenges during the pandemic.
China, our nation’s top-ranked trade partner when Trump entered office, is now our third-ranked trade partner, its percentage of our imports down significantly.
Increasing tussles over technology between the world’s two largest economies will only deepen the rift, Lang adds.
“The second is the 300, which is actually the decrease — again, $300 billion — of trade between Russia and Europe,” he continued, which is most noteworthy tied to the diminution of natural gas delivered via pipeline. But, he adds, that while it is overly simplistic, that $300 billion is being replaced by $300 billion in U.S. exports of LNG.
There’s the first of several glimmers of good news for the United States.
The United States, an increasingly powerful energy exporter on global markets, set in motion by former President Obama’s end to four decades of restraint on U.S. oil exports as hydraulic fracturing came online, stands to benefit.
Before we get to that third number Lang mentioned, 1,000, it’s worth noting that all three numbers involve at least one party to the first and now second Cold War: the United States, Russia and China.
There are also three causes, as spelled out in the Boston Consulting Group report.
The first, as mentioned, is Covid-19. It originated in China, which remains less than forthcoming about the pandemic’s origins and, with the Lunar New Year upon it just as it reopens its society after rare and public protests against its draconian lockdowns, is about to experience an avalanche of sickness, hospitalizations and death.
Don’t expect that to be without global economic consequences.
The second, also as mentioned, is the Russian invasion of Ukraine. That’s part of the twisted fantasy of a immoral and ruthless madman to recreate something resembling the former Soviet Union, leading to sanctions and an increasingly bold West determined to prevent what President Putin once thought would be a walk in the park.
But, at the moment, there appears no easy out for Putin. Don’t expect this to be without continued global economic consequences, as India and China continue to buy the energy the West now rebuffs.
Now, the third number.
“The third number, which is the most interesting number, with 1,000 billion, so one trillion” Lang says in the video, “is actually the additional trade that comes into and out of the ASEAN countries, so Southeast Asia at large.
“That’s the big changes in the trade map in the next 10 years.”
This was why Obama called for a pivot to Asia, and sought a trade pact with a host of those nations, sans China, which Trump rejected after his election. It’s why other people who think about things like this have been calling the 21st Century the Asian century for some time.
Simply put, Asia has the population and the faster-growing economies than the less fertile and more established economies of the United States and Europe.
The impact of this realignment is possibly more corrosive long-term to the global economy than the other two, harder to unwind.
But there’s another glimmer of good news is the BCG report for the United States, at least tangentially.
In addition to the ASEAN nations, also benefitting from the bifurcation of the global economy is Mexico, the “Western Hemisphere’s China,” if you will.
Boston Consulting Group sees an additional $217 billion over the next eight years, according to an email exchange I had with the public relations firm.
That’s certainly big news for Texas border towns like Laredo, currently the nation’s third-largest port behind only Chicago’s O’Hare International Airport and the Port of Los Angeles, as well as its two neighbors, Pharr and Eagle Pass, and El Paso.
But the United States should also see an additional $236 billion in trade with the ASEAN nations, the report says.
In the end, a world splintering into spheres of influence and commerce as trade growth slows is hardly good news.
Changing course, or returning the path set out after the end of World War II, will take a president who understands the enormous value exports and imports bring to the world, both in terms of benefits to the world’s peoples and to its ultimate safety.
I wish I could tell you I see that person on the horizon.