In a little-noticed interview, the chief of Panama's Canal Authority concedes that 'the world and the canal were unlikely to ever again see the booming container trade that characterised the 1990s and early 2000s' due to shifting manufacturing patterns and American thrift.
Obviously, he has business reasons for playing down the market's prospects, now that he is completing his canal's US$5.3 billion expansion. He wants to scare off potential rivals. Moreover, his widened canal is still too small for the growing ultralarge containership segment, so he may not be seeing a fully accurate view of world trade. And Panama container traffic is highly US-centered. Even so, other sources confirm global sluggishness in container traffic, which forms half of Panama's revenue and is a symbol of our connected world economy.
The Box, a celebration of containerisation, was published in late 2007, the year container trade peaked in the Canal. Did this book call the top?
Shipping companies have been worried about trade for a few years now. What the Panama Canal executive says confirms their worst fears: a secular shift down in trade intensity. From the 1980s to the GFC, exports rose at about twice the rate of economic growth; since then they have grown barely in-line. As the price of stuff fell, container volumes did even better than headline trade value, often at two or three times GDP growth. But now this 'multiplier' is anaemic too: globalisation's momentum'has been lost.' [fold]
Despite worries, protectionism has so far been the dog that didn't bark. In the wake of the GFC, many expected far worse barriers. As it turned out, progress on trade liberalisation has been made globally (eg. on agriculture) while anti-dumping complaints have been targeted (steel is one industry to watch).
But the move towards regional preferential trading blocs, and away from global trade negotiations, is clear enough. These blocs always resemble geopolitical groupings. Intra-regional transactions shorten distances compared to global routes, so trade volume (measured in total tonne-kilometers) is adversely impacted. It's natural for neighbours to trade more. In fact, what is remarkable is how supply chains, thanks to the economies of containerisation, became hyper-globalised to begin with.
Whether regionalisation is the reassertion of 'near-sourcing' advantages, or the more ominous result of geopolitical clustering, is the question. It is notable, for example, that the stated priority of the US is to seal trade agreements spanning the Atlantic and Pacific oceans, while China is focused on building trading pathways into Eurasia and across the Indian Ocean. Beijing will be onto something if it can make terrestrial routes cost-competitive with huge container ships.
But Americans still love Chinese imports, buying one-fifth of them all. Fully three-quarters of America's current account deficit is with China alone, an amazing dependency. China has an epic share of some US import categories, like 99% in air conditioners. And the American public is as pro-trade as it has been since 1997.
Still, there does seem to be some China fatigue in rich countries. Since about 2011 the Chinese share of imports into developed economies (mostly the US and EU) has flattened in the 15-20% range. Wage inflation and a stronger exchange rate have tamed China's competitiveness. Today it is still expanding its current account to all-time highs, but at a slower rate, and increasingly at the expense of its South-South partners. The single biggest driver of Chinese export growth in recent years has been industrial goods to emerging economies.
Advanced economies might reconfigure away from China to their neighbours, like Mexico for the US or Slovakia for the EU. Within Asia the same pattern of diversification is occurring.
Japanese firms have a 'China-1' strategy, helpfully nudged along by 2012's rare-earth blockade. Korea is busy setting up South East Asian manufacturing hubs as well. But this region is really China's backyard, or its 'bath plug', as Thai strategist Thitinan Pongsudhirak says, somewhat ambivalently. Another commentator recently claimed that Beijing has the upper hand over America in the South China Sea not just because of its geography but because of its asymmetric trade position. Whereas US citizens totally depend on China for myriad necessities, he says, 'China, by contrast, depends on the United States for little of vital importance.' He will not be comforted by Chinese hawks who question whether Americans have the financial stomach for a dispute over the South China Sea. As most everyone knows, this is the single busiest sealane in the world.
A conflict in the South China Sea is just one threat to world trade. But there will be plenty of consequences of 'peak Box' in any case. For instance, the value of trade could continue to rise while the mix moves towards more information products and services (where Washington's trade interests are focused) and away from physical merchandise and bulk materials. China may have already passed its maximum steel and coal demand, years ahead of miners' expectations. The miners know there will never be another China. Its urbanisation and trade globalisation have been the two pillars of world economic growth.
Photo courtesy of Flickr user Paul Townsend.