US pullout from WTO to enhance negative effect of trade wars, experts say

TASS Russian News Agency | Aug 15, 2019 at 12:53 PM

MOSCOW, August 15. /TASS/. The US’ possible withdrawal from the World Trade Organization (WTO) will influence the development of global trade relations and exacerbate the effect of ongoing US-China trade wars, experts interviewed by TASS said.

On Tuesday, August 13, US President Donald Trump said that the US might leave the WTO if it "has to."

Global trade wars

Russian business ombudsman Boris Titov believes that the move not only threatens the existence of the organization itself, but may also lead to global trade wars and slow down the growth of the international economy.

"That will be the constant trade war, one major battle. WTO (symbolizes) the post-war world, meaning that after the end of the war the sides, being aware of their potential, sat down to talk and reached an agreement. In the event of the lack of that agreement, the battle will start once again," he said, adding that such an "unstable situation will destroy global resources, putting pressure on the efficiency of the economies."

Meanwhile, business ombudsman believes that Washington will not find itself in an advantageous position in this case as the international trade will start taking shape around other major players, with China having the strongest position on the global arena now.

Market watchers share Titov’s view. Particularly, Alfa-Bank’s Chief Economist Natalia Orlova told TASS that "the US’ actions evidence that trade wars are not going to be a story for a couple of years ahead, but mark the beginning of structural transformation of global trade."

"The threat of WTO facing a crisis will significantly rise. If the US withdraws from the organization, a considerable part of the global economy will be uncovered by WTO rules. That will make the situation in global trade and economy even more tense, which will raise the chances of a serious slowdown in global economic growth rates," Vladimir Tikhomirov, chief economist at BCS Global Markets, said.

Prospects for Russia

As any trade barriers, the US’ pullout from the WTO will negatively influence global economic growth rates, which in its turn will reduce the demand for Russia’s key export goods, Vasilisa Baranova, an analyst with the ACRA analytical credit rating agency, suggests.

"Commodity prices, including oil, may be under pressure, as investors will allow for the global demand decline in scenarios. Whereas the oil price slump will inevitably deteriorate the indicators of Russia’s economy and budget, may weaken the ruble and spur inflation pressure. We evidence all those signs already now, the reason being the US-China trade war," Tikhomirov explained, adding that "the situation will become only worse in case of the US’ withdrawal from WTO."

Meanwhile, Alfa-Bank’s Orlova assumes that the Russian economy may be less affected by the potential US’ pullout from the trade organization. "WTO withdrawal will give a free hand to the US in using trade instruments at its pleasure, while WTO appears to be turning from a global organization largely into a regional organization. The scaling down of WTO’s role poses no direct major threat for Russia, as WTO virtually does not regulate commodity markets, while commodities are Russia’s main export items. The weakening of WTO’s position is bad news for countries exporting high value-added goods," she emphasized.