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DHL Global Trade Barometer Shows US-China Rift Taking a Toll

Brought down by the U.S.-China trade dispute, the DHL Global Trade Barometer (GTB) indicates a slight decline in worldwide trade in the next three months for the first time since the index was launched in January 2018.

These losses led to an overall drop of eight points in the world trade outlook to a new index value of 48. The overall decline was driven by significant losses for air freight and containerized ocean trade, which are the GTB’s two fundamental constituents. Air trade declined six points to an index value of 49 points, and containerized ocean trade fell eight points to an index value of 48.

The GTB index represents a weighted average of current growth and the upcoming two months of global trade. An index value above 50 indicates a positive development, while values below 50 point to a decline in world trade.

“Amidst rising U.S.-Chinese tensions, the slightly negative outlook for global trade for the third quarter of 2019 does not come as a complete surprise,” Tim Scharwath, CEO of DHL Global Forwarding, Freight, said. “The latest GTB clearly illustrates why trade disputes create no winners. Nevertheless, some major economies such as Germany continue to record positive trade growth.”

Scharwath noted that from a year-to-date perspective, world trade growth has still been positive, causing DHL to stick with its prognosis that 2019 will see overall positive, but slower trade growth.

Eswar S. Prasad, professor of trade policy and economics at Cornell University in Ithaca, N.Y., said in a report analyzing the GTB that growth is weakening in the key drivers of the world economy.

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“Most macroeconomic and labor market indicators point to a cooling of U.S. growth and financial market sentiment has been hurt by trade tensions,” Prasad said. “The Chinese government’s stimulus measures appeared to be stabilizing growth, but persistent trade tensions are again dragging down growth momentum in China. The German growth revival looks fragile, while India’s growth has hit the skids, with rising doubts about the prospects of major economic reforms.”

He added that a “synchronized slowdown of the world’s major economies could affect trade volumes, if the uncertainty continues to dampen consumer demand and business investment.”

The U.S. saw the heaviest losses among all GTB index countries, with its outlook declining 11 points to 44. Those losses were mainly driven by a negative outlook for major export categories.

China was the second-biggest loser, with a decline of 7 points to 49–an index value one point below stagnation, DHL noted. China’s negative outlook was primarily driven by declining imports in several categories.

DHL said while the U.S-China trade dispute has been a “looming, growth-impending threat” since the GTB’s launch in January 2018, it has never manifested itself as much as now in actual trade forecasts.

“Given the U.S.’s and China’s large contribution to the global index, their diminishing trade growth rates contribute to a large extent to the projected global decline,” the GTB report added.” The still rather mild global trade contraction can be explained by the fact that during trade conflicts, trade flows do not merely dry out. Instead, trade routes and supply chains shift into other countries. On a global scale, this partly offsets the negative effects of trade tensions between countries.”