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Global trade is deteriorating fast, sapping the world’s economy

London • A weakening world economy, President Donald Trump’s trade war with China and fears of a potentially tumultuous Brexit have combined to produce a dramatic slowdown in global commerce, the World Trade Organization said Tuesday.

The Geneva-based organization slashed its forecast for trade growth for this year and 2020, a troubling indicator as economists warn of continued weakness in the global economy.

World trade in merchandise is now expected to expand by only 1.2% during 2019, less than half the 2.6% pace of growth anticipated in April, the WTO said in a statement. World trade is forecast to expand 2.7% next year, below the 3% previously foreseen.

“Risks to the forecast are heavily weighted to the downside and dominated by trade policy,” the organization said.

The pronounced deterioration of trade reflects risks that have been building around the globe in recent months, diminishing fortunes in major economies.

“China has been slowing noticeably,” said Per Hammarlund, chief emerging markets strategist at SEB Group, a global investment bank based in Stockholm. “India is slowing. The United States is slowing as well, and Europe in particular is slowing quite sharply. That’s the main reason behind the slowdown in world trade.”

But if the slowdown in trade is still largely an outgrowth of broader economic weakness, concerns are building that less trade could itself spur retrenchment going forward.

Germany has become a prominent source of concern in Europe as its factory orders plunge, a trend that deepened in September, according to a survey released Tuesday. German manufacturing troubles stem in part from the fact that Chinese companies facing tariffs on exports to the United States are shrinking their purchases of German-made machinery. German companies are also reluctant to invest amid perpetual uncertainty over Brexit.

As German companies produce and export less, some are cutting jobs. That is likely to dampen German consumer spending, contributing to weakness in other European economies like Spain and Italy.

These strains are only intensifying as Trump ratchets up his trade war with China. In April, when the WTO released its last forecast, sentiments were influenced by hopes that Washington and Beijing were nearing a deal to resolve their trade disputes. That now seems like a long time ago.

In September, Trump increased tariffs on $112 billion worth of Chinese imports, threatening American consumers with higher costs for shoes, apparel and electronics. As China slapped retaliatory tariffs on $75 billion of American imports, Trump threatened to extend tariffs to $550 billion worth of Chinese imports.

The president last month delayed by two weeks a planned increase in tariffs on $250 billion worth of Chinese goods, briefly rekindling hopes for a deal. But many experts are skeptical that, with both sides dug in, an agreement will be struck.

The United States and China are the world’s two largest economies, collectively comprising 40% of the world’s annual output. As they are locked in conflict, every other trading nation is vulnerable to the effects.

Singapore’s economy is now contracting, and Japan, South Korea and Taiwan have suffered diminished prospects as their exports to China slow.

“The policy uncertainty about the future and the real enforcement of trade restrictions is starting to be felt in other places,” said Meredith Crowley, an international trade expert at the University of Cambridge in England.

The WTO, which promotes global trade and adjudicates disputes, warned that intensifying trade conflicts pose a direct threat to jobs and livelihoods, while discouraging companies from expanding and innovating.

The organization issued its forecast on the assumption that global economic growth would register a disappointing pace of 2.3% this year and in 2020.

“Trade conflicts heighten uncertainty, which is leading some businesses to delay the productivity-enhancing investments that are essential to raising living standards,” the organization’s director-general, Roberto Azevêdo, said in a statement. “Job creation may also be hampered as firms employ fewer workers to produce goods and services for export.”

The organization singled out as an especially potent risk the threat that Britain could crash out of the European Union without a deal governing future trade.

Ever since Britain set Brexit in motion through a referendum in June 2016, Europe has faced uncertainty over the rules that will govern trade across the English Channel. With weeks to go before the deadline, the situation is especially bewildering.

Prime Minister Boris Johnson has vowed to take Britain out of the Europe Union on Oct. 31, regardless of whether he can secure a deal with authorities in Brussels, and despite widespread assumptions that a no-deal Brexit would entangle trade in bureaucratic and logistical chaos.

He has demanded a scrapping of a provision negotiated by his predecessor, Theresa May, to prevent the reimposition of a hard border separating Northern Ireland, which is part of the United Kingdom, from the independent Republic of Ireland to the south. The Europeans have held firm, while Johnson has proposed no formal alternative.

But the British Parliament, alarmed by the possibility of an unruly no-deal Brexit, last month adopted emergency legislation that would force Johnson to seek an extension of the deadline if he fails to strike a deal. Speculation persists that he might opt to ignore that directive, setting up a constitutional crisis. He is also dealing with allegations that, while he was mayor of London, he directed government funds to a woman with whom he was having an affair.

That an election will soon transpire is accepted as a given, but no one knows when.

None of this enhances the motivation of companies to invest in Britain. The British economy contracted between April and June. Across Europe, the spectacle of Britain at once getting poorer and stuck in the Brexit quagmire is not good for business.

“The British situation is much more uncertain today,” said Crowley, the Cambridge trade expert. “That is feeding into the weakness of trade growth for other European countries.”