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Europe is by far the biggest victim of the long-running trade dispute between the U.S. and China and the permanent uncertainty that it creates for the global economy. New trade figures released this week by the Organization for Economic Cooperation and Development (OECD) help explain why Europe’s biggest economy and major trading powerhouse, Germany, will barely grow this year.
Global exports shrank by 0.7% in the third quarter of the year, the OECD said. But the fall was steeper for the EU, whose exports contracted by 1.8%. Exports from China and the U.S. declined by 1.6% and 0.2%, respectively.
The OECD uses current dollars for its reporting, and the numbers partly reflect the depreciation of major currencies against the dollar during the period. But the trade slowdown is real, and the OECD noted that global trade is now approaching a two-year low.
Any slowdown in world trade is bound to hit the European economy harder than the U.S. or China’s. Foreign trade (the addition of exports and imports) amounted to 83% of the EU’s gross domestic product in 2018, according to World Bank data. It only represented 38% of China’s and 27% of U.S. gross domestic product.
Even though it keeps growing, the European economy’s performance would have been worse if the European Central Bank (ECB) hadn’t kept its monetary policy loose throughout the year, despite rising criticism. The ECB even doubled down by announcing in September that it would resume its bond-buying program, known as quantitative easing, and lowering further its already-negative key interest rate.
But the trade numbers also show the possible limits of the fiscal stimulus that the ECB has long been calling for. A slump due to slowing global trade is more difficult to fight with tools designed to boost domestic demand. The best stimulus for Europe would be the end of the destructive US-China showdown.
