Global Investment to Plunge, Trade to Languish, on “Depressed” Demand: G-20 Trade Ministers

What China said the G-20 projected at the Shanghai meeting.

Facing “depressed market demand” and plunging global cross-border investment, the trade ministers of the G-20 countries along with folks from the IMF, the Organization for Economic Cooperation and Development, and the World Trade Organization, among others, met in Shanghai this weekend to hash out a plan.

As at all these meetings, they reached an agreement, of sorts. The G-20 countries account for about 85% of global trade and 70% of global investment, so they matter.

During the briefings on Sunday, everyone had their own version of what had been achieved, if anything. The Office of the US Trade Representative announced that the G-20 had reached an agreement “on a package of outcomes covering WTO multilateral and plurilateral trade agreements and negotiations, investment, and cooperation on global value chains.”

US Trade Representative Michael Froman “hailed the results as a good example of G-20 leadership and shared goals in promoting global trade growth and public support for trade.” That sort of thing.

Then there was the issue of “global excess capacity in key sectors, such as steel,” he said in the statement. This has been a sticking point between the US and China:

“On excess capacity, the G-20 took an important step in the right direction by recognizing that excess capacity is a global issue. Building on recent U.S.-China bilateral commitments, the G-20 has added to the chorus of voices calling for tackling the root causes of excess capacity for the benefit of both developing and developed countries.”

Excess capacity is of course the very result of harebrained monetary policies all around, and government subsidies in China and elsewhere. Cheap money and endless stimulus create the illusion of future demand, and businesses, fired up with cheap debt, start building capacity to meet this future demand that then never materializes. Hence overcapacity. It eventually destroys capital, banks, prices, and often entire industries, along with millions of jobs. So the first place to start addressing overcapacity would be central banks.

“Structural problems, including excess capacity in some industries, exacerbated by a weak global economic recovery and depressed market demand, have caused a negative impact on trade and workers,” the G-20 statement said, according to Bloomberg. Subsidies and other support from government “can cause market distortions.”

No mention of the root cause: central bank policies.

But the Chinese version was different. It wasn’t fretting about excess capacity. It was fretting about global demand, global trade, and investment. Chinese Commerce Minister Gao Hucheng at a news conference after the meeting:

“Global economic recovery remains sluggish, trade growth is lingering at a low level and investment flow has yet to recover to pre-crisis levels.”

It was all about global demand: “G20 countries should lead the way in tackling problems facing the world economy and reviving engines for global growth,” he said.

So maybe more stimulus and even lower interest rates? He didn’t say.

But Gao gave some insights into what was really discussed: he said the trade ministers at the meeting projected that cross-border investment would plunge by 10% to 15%!

Every economy counts on foreign investment as part of its growth model, some economies more so than others, and a global plunge of up to 15% of cross-border investment is what these folks were seeing and fretting about. Not a word about that in the US version.

So Gao said that the G-20 representatives pledged to increase their efforts to facilitate trade and urged other WTO member nations to do the same to revive global trade.

China’s Vice Commerce Minister Wang Shouwen too worried about trade. He said at the news conference after the meeting that the Brexit vote would hit global trade in the short term, and so there would be a G-20 workshop to study its impact. But he defended China in terms of overcapacity: his country is already cutting millions of tons of excess steel capacity, he said, while other countries are still just discussing how to do so.

If these trade ministers are right in their gloomy projections that global cross-border investments will plunge by 10% to 15% this year, on top of the already “sluggish” – as Gao had put it – global economic recovery and languishing global trade, then this will not bode well for the global economy.

Is this the gloomy scenario the “smart money” is betting on? Read…  Fear, Loathing & Record Money-Making in Government Bonds

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  23 comments for “Global Investment to Plunge, Trade to Languish, on “Depressed” Demand: G-20 Trade Ministers

  1. Dominick says:

    Is this a Freudian slip?
    “So maybe more stimulus and even lower interest rates? He didn’t day.”

  2. Sound of the Suburbs says:

    Supply creates it’s own demand.

    Oh, maybe it doesn’t.

  3. Sound of the Suburbs says:

    To try and keep this polarising neoclassical economics going the only solution looks like helicopter money.

    Neoclassical economics assumes raw capitalism will reach stable equilibriums that benefit the majority.

    The Euro-zone works on this assumption and we see the rich nations get richer and the poor nations get poorer. We then use austerity on the poorer nations to exacerbate the problem.

    Has raw capitalism ever helped the majority?

    We had small state, raw capitalism in the 19th Century, the wealthy lived in the lap of luxury and the poor lived in abject squalor. The vast majority were poor.

    To maximise profits the wealthy used slave and child labour and only gave them up when regulations were put in place and they were compensated for the loss of their slaves.

    Only through organised labour movements did the workers get a larger slice of the pie and it had nothing to do with raw capitalism itself.

    Neoclassical economics was in use in the 1920s and its raw capitalism again led to massive inequality.

    The wealthy had so much money to invest they got drawn into wild speculative bubbles. The Wall Street Crash and the Great Depression came next.

    Today everything is polarising again with massive inequality, with such subdued demand everyone is struggling.

    How much longer can we believe in this neoclassical nonsense?

    In a world drowning in investment capital, negative interest rates have to be used to try and keep the stuff away.

    Demand is so subdued there is nothing productive worth investing in and so people are willing to pay to have somewhere to park their money.

    Get the impression things have gone too far?

    To try and keep this polarising economics going the only solution looks like helicopter money.

    • marty says:

      We’ve seen this post before. What exactly do you say “raw capitalism” is and why do you think it exists? From everything I’ve seen and read, we fascism worldwide.

      The 19th century saw the middle class emerge from poverty. Child labor was ultimately abolished because people increasing entered the middle class, due to capitalist practices. Do you think that the masses were better off before the industrial revolution???????

      • nhz says:

        agree, there are many examples e.g. from Europe that prove the point.

        My country, the Netherlands, had a ‘Golden Age’ four centuries ago that in many ways was based on capitalism (invention of the stock market, the first multinational corporation, inventors and artists profiting from an influx of money etc.). Everybody profited, although the rich probably profited the most.

        There were long periods in history when conditions for the average population improved slightly with every generation. And one could say that the periods of decline for the average citizen were tied to restricting capitalism due to monopolies, too restrictive government and war (admittedly, sometimes also tied to capitalism …).

        Clearly the last 30 years or so have been a period of decline for most of the western population and I’m convinced the lack of real capitalism (TBTF, too much government, too many Keynesian idiots in charge of economic policy) is a major factor in this.

    • robt says:

      Philip Larkin, poet laureate of England, when asked why, as a member of the arts he was a conservative rather than a socialist, responded:
      “Because the values of the conservative are self-reliance, industry, patriotism and duty”.
      And the values of the socialist?
      “Envy, sloth, and treason”.

    • illumined says:

      Is it really capitalism when the financial markets are directed by governments and driven to big bubbles as a result of government policy? I think not.

  4. d'Cynic says:

    G20 meetings, as other meetings create their own reality; an increased demand. Just like digging holes and filling them back up again.
    Paul Krugman would approve. The more of them, the better.

    • Jonathan says:

      “Depressed” demand means the 1% haven’t stole enough from the 99% of already impoverished populace, gotta steal somemore. If that doesn’t work (as if it would), print more free socialist money for the 1% in the name of capitalism while blaming how socialism for 99% is ruining the overall economy.

      • night-train says:

        Are socialism and capitalism really that different anymore? Seems that they are only defined by whom they benefit. Socialism for corporations is a policy, but somehow isn’t considered to be socialism. Is printing money for banks to lend at credit card rates, or, indemnifying banks and other entities from the consequences of bad decisions really capitalism? Seems to me, that socialism for the 1% is capitalism in name only. Is destroying the middle class capitalism or socialism? I’m sure the economics theorists can sort it all out. But theory and reality often diverge grossly.

  5. wratfink says:

    Capital investment enabled demand to be pulled forward during the Industrial Revolution. Demand for goods that depended on cheap energy in order to be produced.

    Cheap energy is mostly gone barring some miraculous discovery yet to be seen.

    Sure, there are plenty of hydrocarbons left in the ground. They will mostly remain there as it would require more energy to get them out and to the end customer than they contain.

    The more common state of the world is feudalism.

  6. nhz says:

    it’s funny how these days for some honest perspective you have to listen to Russia or China (still ridiculed and demonized by the daily broadcasts of our own Dutch Ministry of Truth …).

    • Nicko says:

      Chinese elite are laundering their money out of the country as fast as they can, they know the game. The rich Russians already have their London townhouses fitted out.

      • nhz says:

        I guess they are way behind in this game compared to the US and UK citizens who have plenty of opportunity to launder money within their own country, assuming they are rich enough (for the little people laundering money is a crime of course).

  7. Paulo says:

    And just think, the elite who own all the media outlets have managed over the last 40 years to convince people that ‘Unions are bad’, at the same time giving workers a gentle nudge over to expose their backsides. Imagine, southern state VW workers afraid to vote yes and participate in company operations and decision making.

    Cheech might say, “We don’t need no stinkin’ unions”.

    Romney might say, “The job creators pay you because they value American workers. This robot business is not going to happen, and shhhh, don’t worry so much, our plant we’ll never close”.

    Chorus, “We need a bailout. If it wasn’t for those ‘entitlements’ our economy would be just fine and we wouldn’t need Govt intervention. Oh yeah, a Flat Tax would be even more fair.”

    Keep that old NFL and MMA going. Keep the smart phones turned on. Screw up public education and pretty soon critical thinking and self-determination will exist only in fantasy. People will be too dumb to protest. Think of dull-eyed cattle walking up the chutes into the slaughterhouse.

    By the time people realize this is class warfare it will be too late. The greedy have sucked the guts out of the future through debt creation and political influence.

    “I don’t know where the money went”, said Madoff.
    “The economy is strong”, said Obama.
    “I’ll release mine when everyone else releases theirs”, said Clinton.
    “I’ll build a Wall and Mexico will pay for it”, said Trump.

    I think I’ll go pet my dog and give my wife a hug.

  8. Albnyc says:

    And the band played on…and on…and on.

  9. Ptb says:

    Money is probably going to get cheaper. Hard to believe , but the path the Japanese have been on is probably ours as well.

  10. Chevini says:

    Global trade and Consumption will not increase until consumers start buying.
    Consumers won’t start buying until they receive a decent income.
    Consumers won’t receive a decent income until the employers stop driving down wages and exporting jobs to cheap labour countries.
    How do these Financial Geniuses expect people to buy their products when they have already taken the money from the people.

    • night-train says:

      Seems the big dog policy folks have painted themselves and us into a corner.

Comments are closed.