Reviving the Downgrading Economies through International Trade

Executive Summary

This is a policy report which address the declining of advanced economies especially in India, China, Sub-Saharan Africa as well as Latin America. It also makes recommendations on how international trade can assist in reviving economic growth of developing countries.

Introduction

Currently, we are in an uncertain stage in world economic development where emerging economies are losing their dynamism, this only comes only after a three-decade-long run where economies were catching up with other advanced economies (Subramanian & Felman, 2020). Therefore, there is a suggestion that rekindling the efforts put before to advance economies requires new economic strategies. Reports from the World Bank and the International Monetary Fund are pointing to protracted slowdowns especially in India, China, Sub-Saharan Africa as well as Latin America. The report refers to this decrease in vigilance in economies as "end of growth". However, policymakers in developing states are genuinely concerned and doing a great job of reviving flagging dynamism. In the past, states had a ready intellectual solution which was known as “Washington Consensus”. This term was structured by John Williamson (Subramanian & Felman, 2020). The term advocated a broad strategy of macroeconomic privatization, stabilization, globalization and, deregulation. However, its applicability and effectiveness are questionable.

Declining Economies and the Trade Conflict -A Threat to Global Growth

The international economy is in a slowdown which is synchronized. The global economy is generally downgrading and in 2019, it’s growing at the slowest rate since the international financial crisis (Lea, 2019). Moreover, the growth continues to decline due to the rising trade barriers as well as the increasing geopolitical crisis and tensions. For instance, the US-China trade crisis has resulted in a sharp decline in the level of global GDP. Additionally, the growth is being affected by country-specific factors especially in the emerging market economies like in India and Latin America. These factors include aging demographics and low productivity growth in advanced economies. Furthermore, the decline in the economy is promoted by the sharp deterioration in global trade and manufacturing activity. In the global economy, there are higher tariffs as well as prolonged trade policy which have greatly impacted demand for capital goods and investments. Other states like India and china largely rely on the automobile industry. This industry is faced with a variety of factors like disruptions from new emission standards and has durable effects on the country’s economy. Overall, trade volume growth in 2019 has fallen to one percent which is the weakest level since 2012 (Kose & Ohnsorge, 2020).

However, regardless of the extremely weak trade and manufacturing sector, the services industry is still flourishing across the globe. This has created a gap in the labour markets. It is also notable that, the monetary policy is very critical in supporting growth. In most developing states like in sub-Sahara Africa, major central banks have appropriately reduced the downside risks to growth. Studies appreciate that within the absence of such monetary stimulus, international growth would be lower by 0.5 percentage as of 2019 and 2020 (Billi et al., 2020). The study also reveals that advanced economies have continued to decline towards the lower long-term potential. The Strong labour market policy and stimulus are helping to offset the negative effects of weaker external demand for these economies.

In recent years, there have been high trade tensions which are resulting in the ongoing slowdown in international economic activities. This is decreasing industrial manufacturing and production and global trade growth has declined sharply. Even in some developed states, trade growth has declined below the average rate of growth from 2012-17. Prolonged weak sentiments and higher tariffs have negatively affected domestic demand growth in advanced states like China, India, and Europe. China being a major source of final demand for many East Asian exporters, currently, there is a great change in the structures of trade than a decade ago. Additionally, slower growth in China impacts the world demand for goods and trade crisis adversely impact commodity-dependent states like Latin America and Africa as per the Department of Economic and Social Affairs Economic Analysis (2019). The intensification of the trade conflict usually fuels greater uncertainty in the global environment, resulting in an increased likelihood of firms cancelling investment strategies. Due to the trade crisis, manufacturers are currently relocating their production from China to other states especially those in the East Asian region. This slow down would result in weaker job creation and constrain productivity growth. The loss of income affects social spending and increase goods.

Recommendations to Revive the Downgrading Economies by the International Trade

I recommend that the world trade organization (WTO) as well as the open global trading system to expand and encompass more positive tariffs behind regulations and border issues to address the requirements of supply chain-based trade. This would rejuvenate the declining economies such as in China and developing states.

Moreover, I recommend that world trade organizations to promote the well-being of citizens and their governments globally to address deep structural weaknesses. This would ensure that the citizen is healthy and this would promote the development of the economy.

I also recommend that trade barriers should be removed or revised to be more entrepreneurial friendly and limit the capacity of organizations to make the most of knowledge as well as technological diffusion.

Additionally, world trade organization should address labor-market problems and make growth more inclusive, integrating the low participation of women in the labour force and, unemployment. This would boost confidence and encourage manufacturing, investment as well as trade.

On the other hand, the global trading system requires to be improved and countries should work together and encourage multilateralism. In contrast like in the crisis in China and the USA, working together can help in solving climate change, tax avoidance cybersecurity risks, and tax evasion, and the black markets, therefore, rejuvenating the declining economies.

Conclusion

Currently, we are in an uncertain stage in global economic development where emerging markets are losing their dynamism, this only comes only after a three-decade-long run where economies were catching up with other advanced economies. Some of the factors resulting to decline in advanced economies include a decline in manufacturing and embracing the service industry, trade crises such as witnessed in the USA and China. Prolonged weak sentiments and higher tariffs have dampened domestic demand growth in advanced economies like China, India, and Europe. However, modification of trade tariffs and the general international trade can revive many economies.

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References

Arvind Subramanian & Josh Felman., Jan 24, 2020. The Next Big Development Challenge. project-syndicate. Retrieved March 14 2020 From:

Billi, R.M., Söderström, U., Walsh, C.E. and Cruz, S., 2020. The Role of Money in Monetary Policy at the Lower Bound.

Department of Economic and Social Affairs Economic Analysis., 1 September 2019. World Economic Situation And Prospects: September 2019 Briefing, No. 130 Retrieved March 14 2020 From:

Kose, M.A. and Ohnsorge, F., 2020. Emerging and developing economies: Ten years after the global recession.

Lea, R., 2019. The IMF downgrades global growth again for 2019, slowest pace since the financial crisis. Growth, 130, p.7.