New EU deals provide yet another reminder that the world outside will be a lonely place

After being accused of real slowness and bureaucratic sclerosis in concluding trade deals, the speed of recent EU trade announcements has been surprising. The EU has in the last couple of years concluded trade agreements with Canada, Mexico and Japan. There was one signed with South Korea, a deal with Singapore is due to become effective later this year and now, at the margins of the G20 meeting in Japan, two more deals have suddenly been signed. One of those is with Vietnam—which was in the works but then temporarily abandoned back in 2015—and the other is with “Mercosur,” the trade region which consists of Argentina, Brazil, Uruguay and Paraguay. The latter comes after many years of negotiation. None of them is a complete free trade agreement—they are both weak on services. But they still allow for reductions and in many cases elimination of tariffs for the majority of imports and exports, over a period of time. What explains the rush of deals and the willingness of countries to strike liberalising agreements? And despite the differences that still exist between their markets, especially in the areas of agriculture and investment? It must surely be a reflection of increasing concern that globalisation is going into reverse. How the global trade environment is changing and what it means for Britain are important questions. The truth is that the World Trade Organisation has been warning for some time of an increase in protectionist measures among the G20, particularly in non-tariff barriers. But the US tariffs on imports of steel and aluminium from China, in a bid to reduce the US trade deficit in certain sectors, came as a shock. Tariffs have now been imposed on nearly half of all Chinese exports to the US—and the Chinese have retaliated. Meanwhile President Trump threatened to increase tariffs on a number of EU exports if the Europeans did not reduce their own tariffs for US cars. He renegotiated the Nafta trade agreement with Canada and Mexico from a position of strength. And he threatened to re-impose tariffs on Mexican imports—on which many US states crucially depend—if Mexico didn't take steps to stem illegal migration into the US. All worrying. But it was the US-China trade war escalation that spooked the markets most. They were also troubled by the wider impact of US measures to deal with intellectual property and perceived security threats posed by Chinese technology firms, to which the Chinese also reacted strongly with measures of their own. More was threatened until the truce this weekend, after President Trump and President Xi Jinping met in Osaka. The markets, not surprisingly, rallied on the news. Hopefully it will not prove just a temporary cooling of hostilities. The IMF had taken account of the downside risks of increased protectionism by lowering its forecast for world growth in 2019 to just 3.3 per cent, and warning that nearly $500bn of world GDP could be lost if the trade environment deteriorated further. OECD business confidence and investment had in any case turned negative. In the eurozone industrial production has declined in recent months—in Germany it fell by 1.9 per cent in April alone. The latest EU business sentiment indicator has dropped to dangerously low levels. Trade is obviously paramount for growth, something that every economics student should know. No wonder the two prime ministerial contenders in the UK are so focussed on what a trade deal with the EU might entail. It is good news that deals are being struck. But the truth is that in the absence of an effective multilateral system we have moved to second best. The WTO does not have enough power to truly drive the global trading environment like it could. And so countries muddle through with sub-optimal bilateral trade arrangements, which have now become the norm. The EU's success in getting these latest deals agreed also reminds us that being part of a large bloc helps, however many different interests one may need to balance to achieve a compromise. The world outside the EU, where Britain may soon find itself, could prove a lonely place.