2016 Outlook—International Trade and Investment


米州住友商事会社 ワシントン事務所
James Winslow

• Introduction—The New Year's Rocky Start.

     Although growth has disappointed each year since the global recession, the January dive in equities, commodities, and China's economy was particularly jarring. And while the U.S. has outperformed other developed economies over the past two years, it too disappointed in the second half of 2015. It should come as no surprise then that the events of early 2016 have heightened uncertainty and raised the question: will the factors that have harmed growth globally and in the U.S. build or recede? The answer will be determined within the context of a U.S. presidential election and growing geopolitical pressures.



• Congress: An Eye Towards November.

     The electoral calendar will place a constraint on the passage of any legislation this year. The two major political party conventions are being held earlier than usual, meaning Congress will depart for its summer recess in mid-July and not return until after Labor Day. The two chambers will then have less than a month to pass appropriations legislation to fund the government for Fiscal Year 2017, before returning after the November 8 elections for a lame-duck session. In total, 2016 will see just 111 legislative days, short for even an election year. Adjournment of the 114th Congress is scheduled for December 16.


     Within this limited time frame, and from a practical standpoint, the Republican leadership plans to move legislation that would both help elect Republicans and set the stage for enactment of their agenda if their best-case scenario were to materialize—holding the Senate and winning the White House. However, while House Speaker Ryan (R-WI) would like to highlight Republican ideals by offering reform proposals in areas such as taxes, national security, healthcare, welfare, and reining in perceived Executive overreach, Senate Majority Leader McConnell (R-KY), is looking to protect vulnerable Republican senators in swing states who may not be helped by having to vote on bills with a sharp ideological edge; his preference is on passing appropriations legislation via regular order. This kinder, gentler process could still break down due to either partisan or intra-party reasons, as some House conservatives want to undertake a more ambitious game plan involving new efforts to cut the budget or pass conservative priorities.



• What About Trade?

     Although a shortened congressional session will cause a number of issues to succumb to partisan maneuvering, some of the measures that might find bipartisan support include an energy bill facilitating exports of natural gas and customs reauthorization and enforcement, which has already been passed by the House. As a result, the congressional deck will be mostly clear of trade legislation except for a bill to implement the Trans-Pacific Partnership (TPP). While the House Ways & Means Committee may begin hearings within the month, the White House will not submit the bill until the political climate is conducive. At present, momentum is not with the TPP, but the White House is working with key legislators, the business community, and other TPP member countries to see if the deal can be tweaked through side letters and other clarifications to satisfy specific complaints. While the agreement was formally signed in New Zealand on February 4, experts, lawmakers, and congressional staffers have indicated that action on the bill will not occur until the lame-duck session.


     With TPP negotiations concluded, the administration still has much on its trade menu. Negotiations are expected to intensify with the EU over the Trans-Atlantic Trade and Investment Partnership (TTIP) and the plurilateral Trade in Services Agreement. In addition, U.S. trade officials will be involved in efforts to set the future direction of the World Trade Organization now that the Doha Round has been allowed to expire, and one negotiation that may conclude in 2016 is the U.S.-China Bilateral Investment Treaty. The OECD will have discussions that concern China's steel overcapacity, and Beijing will be focused on the U.S. and EU's decision about whether to grant China "market economy status." Although it is easier to impose antidumping duties on a "non-market economy," once China joined the WTO its trading partners committed to changing its status to MES by December 2016. Whether this requirement stands, even though China remains heavily interventionist, is a legal question with major implications for trade relations. This remains an extremely hot issue for both China and the U.S. steel industry.



• A Discomforting Economic Backdrop.

     Economic discontent grabbed headlines at the outset of 2016, as the start to the year was among the worst ever for global equities markets. The causes were generally recognized as the oil/commodities price drop, China slowdown, and U.S. dollar rise. These inter-connected issues spelled trouble for developing nations and were an early signal that the December increase in U.S. short-term interest rates was not being accepted well.


     In the U.S. despite bright payroll data, additional unexpected bad news on the domestic front, flat December consumer spending and weak November wholesale inventories, spurred most analysts to lower both fourth-quarter '15 and first-quarter '16 GDP growth forecasts. On its face, the November U.S. trade deficit report showing a 5% decline to $42.4 billion looked promising; however, the fall in both imports and exports reflected declining world trade and deflation in commodity and oil prices. The downtrend is now accelerating and analysts are revising forecasts for first-quarter growth to below 1.0%.


     Globally, China's condition looks alarming, despite government assurances that its downturn reflects economic adjustment and "rebalancing." Following a year in which it grew at its slowest pace in 25 years, China saw more of the same entering 2016; in fact, the announcement that growth fell to 6.8% in the fourth quarter as industrial activity and retail sales declined, spurred talk about new rounds of monetary stimulus by the People's Bank of China. However, the loss of confidence in Chinese data is only matched by a loss of confidence in Chinese policy-makers.


     The distress goes beyond China and emerging-markets. In Europe, the French government has spoken of the country's "economic state of emergency," and the UK finance minister declared, "This year opens with a dangerous cocktail of new threats from around the world." Europe's economic problems are worsened by the migrant crisis, and the nosedive in oil prices reflects a steep drop in demand, a global problem heightening deflationary pressure and benefiting no one.



• Projections.

     The latest economic projections by the World Bank and International Monetary Fund were downgraded from previous forecasts, for the world (2.9% growth) and key countries. The Bank pointed out that "Not since the 1980s has growth in major developing economies slowed for three consecutive years," and the IMF noted "great challenges" ahead. The risks include falling Chinese growth, diving commodity/oil prices, capital flight from emerging economies, and overly aggressive hikes in U.S. interest rates. Moving forward, look for the Fed to signal that coming rate rises will be less ambitious than previously indicated, an acknowledgment that the world situation, financial and geo-strategic, remains precarious.