Transcript of the talk, from the video's captions. Auto-generated: speaker names in particular are unreliable. ======================================================================== # The Remains of the Trade: The U.S.-China Trade War and its Aftermath Authors: Discussant: None Video: https://www.youtube.com/watch?v=tcPuz0aK_iA&t=182s ## Talk (00:03:02 – 00:18:55) [00:03:02] Thank you very much, Pivia. It's a great great pleasure to be here. Thank you for the invitation. [00:03:09] Let me see if I can see the slides uh for the presentation. [00:03:13] Um all right, great. So six years ago around 2020 the ECB asked me to write about deglobalization to think and write an article about deg globalization [00:03:27] and the main conclusion in that article was that as of that time the world was not yet del globalizing. I argued that you know using standard series like the share of world trade in GDP that yes [00:03:41] there had been a slowdown in the growth of globalization but there was no evidence of a steady uh or or beginnings of a deglobalization. [00:03:51] The same is true today. Six years have gone by and I don't think it's uh accurate to say the world is delizing. [00:04:00] But I think it's probably fair to say that it's not yet delizing in the sense that the world economy continues to be subject to many shocks that might well lead to deglobalization. And in the [00:04:12] interim, even though we're not seeing the globalization, we're seeing very notable shifts in crossber uh linkages. [00:04:22] Why is this happening? Various reasons. In 2020, we were most concern mostly concerned about COVID. Now we understand that rising trade tensions, geopolitics are much more important. If we look for [00:04:36] instance at the US trade uh China war, it's very clear that we're in a very different stage of that tension today than we were in 2020. [00:04:47] More broadly, uh we know that geopolitics alignment uh is a much more important significant driver of trade flows than it was a few years ago. And that has only accelerated [00:05:02] since the reelection of uh President Trump uh uh in the uh US. [00:05:08] As I mentioned before, not globalization, but we're seeing very important shifts in the US where I live. [00:05:16] We've observed a very marked shift away from China as a source of imports and a move towards other economies within North America. There's growing imports [00:05:28] from Mexico. But as you know, most of the gain in market share that is going away from uh China has been going uh to other countries like Vietnam or [00:05:40] economies like uh Mexico uh and Taiwan. And importantly, this process has deeply accelerated in recent months since the re-election of President Trump. So this [00:05:54] restructuring is a very prominent feature in the last few months of data. [00:06:00] The mirror image of this which is going to be the focus uh of my uh uh the focus of my paper and the presentation is the fact that China has redirected its exports away from the US onto other [00:06:13] economies. The European Union has observed a very marked increase in imports from China. So have many countries in Asia. So as China faced increased cost of uh shipping or or or [00:06:27] selling in the US, they redirected their sales to other markets. And I would argue that this is a the most important thing right now happening in the sense that we have a clear pretty clear sand [00:06:39] sense that this is quite a persistent shock. I don't think there's a presumption that China will be able to access the US market under the same conditions that it did in the past anytime soon. [00:06:53] Beyond this bilateral changes obviously uh and there's people from many countries in the world you know that this shift are having third market effects everywhere. We see countries trading much more with certain countries [00:07:06] than others and differently so than in recent uh months. So this is a table showing trade growth. you see a lot of green and and and red and a lot of uh uh changes. So coming from academia the the task that was given to me was to to [00:07:20] think a bit conceptually about a little bit of why this is happening and I do so in the paper but I'm not going to do today but more what are the consequences if I'm an emerging economy and I observe these large changes and I [00:07:34] observe China pivoting away from some markets to others how is that going to impact me okay if I'm caught in the middle so in the paper we decompose with Andrea we decompose the effects on third [00:07:47] markets into four margins. We have an export exposure. The idea if I'm an emerging economy and I was selling to some markets and now I see China pivoting towards those markets in which [00:08:00] I'm selling. How is that going to affect me? I'm going to face more competitive pressures. We talk about import exposure. Maybe I'm not only competing in export markets, but China redirects its sales to my own market. How is that [00:08:14] going to impact if I start importing much more from China than I did in the past? Think about the EU uh in the graph before it. There's many emerging economies that are witnessing the same growth in Chinese imports. We I'm going [00:08:28] to focus on this too today. I don't have much time. In the article, we talk about intermediate inputs. Part of the import exposure is not just bringing more finished goods from China. Is uh there's going to be more machinery, more intermediate inputs that are going to be [00:08:41] flowing from China. And we also talk about rerouting something that has been talked a lot about how uh I told you there are declining imports from China uh into the US but in increasing imports from Mexico. A lot of people have sort [00:08:56] of argued that this is an instance of rerouting where a lot of Chinese activity has migrated to other countries and Chinese value added is finding its way into the US through third market. So we talk a little bit about that but I'm not going to have much time to talk [00:09:09] about. I want to give you a sense of what we do with some of those margins and if there's interest I'm I'm here for the conference happy to uh uh uh talk more offline. [00:09:19] So export exposure again the idea that certain countries might be observing what's happening with some anxiety because they observe China moving to some markets that were important for [00:09:33] them in terms of exports. How do we measure that export competition? We started with uh the canonical way to do that uh in policy and in academia which is by looking at export similarity. The [00:09:47] extent to which a country's exports are similar in terms of industry composition and destination markets to the exports of China. If I'm selling the same things as China and the same markets, I might [00:10:01] worry that as they increase their sales in those markets, I'm going to be facing more competitive pressures. So there's a wellestablished way to measure export similarity, that's the finger and crying [00:10:14] uh uh uh method. Okay, if you look compute this export similarity, what you observe is that the set of economies that are most impacted in this according to this measure are going to be many Asian economies, some European [00:10:29] economies. You observe that there are fairly large economies being impacted by uh by this shock. Now this may seem reasonal and reasonable and it seemed reasonable to us but when we started [00:10:42] thinking a bit more deeply about the measure we started having a bit of second thoughts you know everybody's using this measure but why I'm an I'm a theorist by heart so I started thinking why should I be using this measure and [00:10:55] then uh what we realize is maybe we shouldn't maybe we should think a little bit more conceptually about what does it mean to face uh competition in export markets what would a standard economic model [00:11:08] tell you uh would be indicators of those pressures? And we developed precisely a measure of export competition that turns out to be shaped by three fairly easily measurable objects in the data. We start [00:11:23] with a shock. What is the shock here? The shock is the fact that certain producers in China that were selling to the US certain products all of a sudden they face much higher tariffs. That's going to lead them to pivot away from [00:11:37] the US to other markets. But how big that shock is going to be is going to be a function of how important was the US market for those Chinese producers. If 90% of their sales were in China in the US, that's going to be a lot of exports [00:11:52] that are going to have to go elsewhere. Okay, so that's the first element of the index. The second one is if I'm selling to some markets, if I'm the emerging economy selling to some markets, how much is China selling in that market as [00:12:06] well? How much of the absorption of that destination market is accounted for by China? If it's large, it's likely that the growth of Chinese exports to that market will be larger. And finally, as an emerging economy, I'm also going to [00:12:19] care about well that destination, how big was it for me? If it's a nearby destination, maybe I sold a lot there. [00:12:27] And if I sold a lot certain products in which China was important and the shock is large, that's where I'm really going to be facing a big cost. When you crunch uh through the numbers, the set of [00:12:40] economies that are most impacted, there is a correlation between this ranking and the one I showed you before. In fact, it's a positive correlation, but there's some very clear differences. The [00:12:53] correlation is far from perfect. What you observe here is a lot of the large economies have disappeared. [00:13:00] Okay. Yes, they have similar export structure than China, but it is really smaller economies that are much more vulnerable uh to this shock. Many emerging economies rather than advanced economies. positive correlation but some [00:13:14] Asian economies are much more impacted than the export similarity would tell you and other economies more advanced economies are less affected I don't have much time but something else we do in the paper is argue that [00:13:28] perhaps this pivoting away from the US and to other markets there's going to be significant changes by which China might start exporting a lot to markets in which it didn't sell beforehand and it [00:13:41] our baseline index doesn't capture that. Well, so we have a variation that allows for this more direct switching of destinations and what you know the main thing that comes out of here is that European economies that are typically [00:13:55] more insulated from the shock if China were to move to a lot of the markets where European firms sell that could be more uh costly for them. Okay, so that's the export uh margin. Let me tell you a bit about the import margin which again [00:14:09] is less about I'm competing with Chinese exporters in other markets but this Chinese exports in in in new markets. [00:14:16] Those new markets might be emerging economies that are now seeing more imports uh from uh uh from China. How do we measure that pressure? So we again start with import similarity. the idea [00:14:29] that if I'm an economy and I tend to import the same goods that the US imported from China before the shock, it's likely that then I'm going to start importing much more from China than before. That's sort of a notion of [00:14:43] import similarity. And you might ask yourself, um, how is that going to impact me? And we argue there's two main ways in which you're going to get impacted. First is your standard import competition. If I had some producers of [00:14:57] the goods that I'm importing more of, those producers are going to be displaced and I might worry about harming the domestic sector. Now, trade economists would always like you to to remind you that imports are not just [00:15:11] bad, they're also good because if you're importing goods, you're buying them more cheaply uh than you would produce them. [00:15:17] So, increased imports from China are likely reduce import prices, which is going to be good for consumers. [00:15:24] So import similarity kind of blends those two things and you can compute it and we compute import similarity but then you don't know whether that's a good thing or a bad thing. So we construct indices that break import [00:15:38] similarity into an import competition index which is a measure of how much the local producers are going to shrink as a result of the shock and you see that that is basically uncorrelated with uh [00:15:51] import similarity. So the economies that are most impacted in terms of competition would be Bangladesh, Haiti, Vietnam. Other economies that have import similarity that is sizable with [00:16:04] the uh with the US in terms of imports from China like Saudi Arabia, they're not impacted because there are no local very few local producers of the set of things that Saudi Arabia imports uh from [00:16:17] China. So that is not bad. It's actually good in terms of reducing import prices. [00:16:23] There are many economies that tend to benefit from this shock because the fact that Chinese producers are not going to be able to sell in the US is going to make those Chinese products available in their local economies at lower prices. [00:16:38] And that is a good thing. That is a good thing for consumers. When we develop indices of intermediate input exposure, that is good for producers. If you can buy your inputs, your components, your machines cheaper than you did before, [00:16:51] that is going to enhance your productivity. So I don't have time to go through that, but this is our indices uh that we uh have developed. I'm almost out of time. So let me just conclude with a summary of the paper. We argue [00:17:05] that USChina trade tensions maybe they're not delizing, but they are creating important and sharp reallocations. there's been a corresponding reorientation of Chinese exports away from the US and onto other [00:17:19] markets and that is something that has accelerated a lot since uh uh Trump's re-election. This shifts are reshaping competitive conditions. I think uh trade ministries should keep a close eye at [00:17:32] what is happening and I think trade diversion you know maybe we'll talk about this later whether this countries can sell to the US or not I'm sure we're going to hear from Argentina is certainly part of the story but it's hard to make sense of it at this point [00:17:46] with all the uncertainty in US policies. What is more clear, more permanent is the fact that China is pivoting away from the US and that is not going to be changing anytime. uh uh assume. Uh with [00:17:59] that in mind, we uh developed tools to try to think about how our economies impacted and under which margins are economies uh affected. To conclude, obviously there's a bigger picture here and the opening speech has made [00:18:14] reference to it. All this is happening against a world economy that is deeply changed where geopolitics has shaping things much more than it did in the past. And where in the economy where I live, the US, we have an administration [00:18:28] that is very much seems committed to protectionist policies and to extractive bilateral deals. And again, there's no presumption that this will change anytime soon. So to summarize and sort of quoting uh famous novel that inspired [00:18:41] the title of this paper, uh the drama here is less in rupture deglobalization more about reorganization. Yes, there's continuity in the aggregate. The trade to GDP ratio is flat, but there's a profound reshuffleling in who trade with ## Discussion (00:18:55 – 00:42:16) [00:18:55] whom and on what terms. Thank you. >> Thank you. Thank you, Paul. Now, let's turn to Minister Albraim. [00:19:08] >> Quick remarks. Let me just check. Can you hear me? Okay, perfect. First, I'd like to start by thanking his excellency Muhammadan and her excellency Christina Gorgva for convening us. This is continuously [00:19:22] becoming a convening that's allowing for more depth, more dialogue and ultimately also more delivery. So, thank you for that. [00:19:33] I think at the outset I'll start by saying that given Paul's presentation, thank you for this research and this presentation. [00:19:41] Trade, global trade is not coming to an end. Trade and investment is still central and crucial for a lot of economies especially emerging market economies. uh and as [00:19:56] such they will always pursue like you said uh for trade to continue to flow re you talked about reallocation and I think that's very uh potent but today what we were used to which is a [00:20:11] rules-based market system this is becoming under strain um and and then with this strain we're seeing that resilience is making a difference countries that are built or designed to be more resilient with institutional [00:20:25] capabilities could fare better. But before we get there, advanced economies have buffers and policy space and that's allowing for them to withstand maybe the strain and the challenges. However, [00:20:40] emmes, emerging market economies can't have the same flexibility and it will be more of an imperative for them, a stronger imperative for them to adapt [00:20:52] and as reallocation becomes uh uh the norm that we're seeing today. Um we will see that countries will be exposed, those who know how to adapt versus those [00:21:06] who can't adapt. And as you said, USChina trade will not really uh reduce global trade. It will force some uh reallocation which forces continuous adjustment that we have to get used to [00:21:19] rather than collapse. And we shouldn't view view these uh I'd say moments of pressure as inherent failures. Uh these are actually signs that there's misalignment between institutions and a [00:21:33] continuously evolving economy. Sometimes the economy, the global economy uh evolves at a slower pace and sometimes it surprises us. And dealing with this reallocation is not just about preserving [00:21:48] a a fixed notion of stability that gives us the illusion of control. It is about dayto-day disruption. Some people call it innovative policym that allows us to [00:22:01] really uh preempt these changes and be ready for it. And then and and this requirement that we're seeing a clearer need for today will be a test on institutional delivery. Countries that [00:22:14] have invested institutional capabilities, institutional uh uh setups will witness better outcomes because they're ready for it. Uh the paper discusses how the reallocation and the [00:22:28] adjustment is multi-dimensional and uneven across countries and that's very potent for emerging economies. This is not a period of temporary disruption. [00:22:39] This is actually a period of strategic choice. We don't have to be dictated what we have to do. This is an opportunity for us to really design how we want to adapt to this uh evolving [00:22:54] trade system uh and how we can seek more sources of value that come from it. And this choice the strategic choice is exercised through institutions. [00:23:05] Um these institutions will be the difference between whether a country will experience this adjustment as a cost or as a new source of value and maybe even a competitive advantage. [00:23:20] And these countries will either be takers of a new uh global trade system or a global economic order or they will be central actors in this reallocation benefiting from it. uh despite probably [00:23:35] most probably having similar uh uh resources uh to begin with uh and when you talk about institutional capabilities it's important to keep in mind speed and agility for emerging market economies I think generally but [00:23:49] specifically for emerging market economies uh time is not neutral uh delay carries macroeconomic cost that compounds over time so countries that were able to [00:24:02] compress press decision cycles while preserving trust and credibility. Uh we're able to turn that challenge uh or that speed actually into a strategic advantage. And countries [00:24:16] with delayed decision cycles uh are often stuck in this uh uh challenge and will actually witness the opposite of value, maybe the destruction of value. [00:24:29] And I think moving into uh this if you want to call it a new world order or this new trade system uh where there's opportunities for emerging market economies uh and more stronger imperatives we need [00:24:44] to keep in mind we've called it uh I'd say fragmented uh uh reallocation um but we can also consider this new [00:24:56] uh uh type of globalization uh one about unlocked potential and if we acknowledge that countries especially emerging market economies have the right to unlock their potential and if the global [00:25:09] community accepts it in fact encourages it and demands it then we're in a better uh ready uh more ready position and the imperative becomes something focused on [00:25:22] genuine dialogue and a modernized continuously evolving rules-based system uh the more there is predictability the more we can react through agreed rules [00:25:35] rather than through improvisation and I think that's better as an outcome for the global economy I'll leave it there thank you very much minister I think there is a lot there that we will want [00:25:48] to come back to but let me turn it over to minister >> thank you Pierre and let me also start by thanking Minister Aljadan and the managing director for the invitation the invitation to this wonderful setting. So [00:26:02] it's a pleasure to be here. I really enjoyed the paper the 70 pages of it. It was actually a book more than a paper. [00:26:09] Okay. So but but actually something very strange happened with me with this paper because Pierre sent it to me and I was reading it. So I went over the abstract. [00:26:19] I was reading the first chapter and then I have an alarm on my email and the alarm on my email indicated I had to sign the trade agreement with the US. [00:26:28] Okay. And suddenly I was inside the paper. Okay. So, so it was kind of weird that had never happened because Paul says geopolitical alignments are predictors of bilateral trade outcomes. [00:26:38] And that was exactly what I was about to sign. So, so it's kind of like I was in a virtual reality of Paul Antra's paper. [00:26:46] Okay. So, so what I'm going to do is I'm going to use the experience of this trade agreement that we signed in the US to kind of go over some of the arguments that Paul does in his paper and try to shed some alternative light on on some [00:27:00] of the on the things that he says. Basically, he does three things. He says three things or for me kind of three more very important things. The first one is the share of China's exports into [00:27:13] the US have had a dramatic fall. actually when I read the numbers even kind of an informed policy maker I was not aware of this go from 22% of US imports to 8% and this has happened over [00:27:26] the last 10 years something which is interesting is that most half of that happened before Trump because we tend to associate this mostly to Trump's policy but actually this a process that was already occurring of course with a big step in 2025 as you just mentioned the [00:27:41] second point is that he has a whole section in the paper he didn't have time to talk about it in his presentation where he says if if geopolitical power is more kind of evenly distributed in [00:27:54] the world that is going to make multilarism more difficult is going to generate trade tensions and probably would lead to this fragmented scenario that he was talking in his slide with higher tariffs okay and I want to kind [00:28:08] of do a double click on that because I want to give an alternative perspective on this second point and then the third was what he mostly spent his time in his presentation which is the third party effects of this reallocation of Chinese [00:28:22] trade. I mean Chinese trade doesn't go to the US goes to other countries. How does that affect well for some countries maybe it it implies more competition in their export market and that's bad. [00:28:33] Maybe it implies cheaper products in their market. I mean there's a whole number of of effects. So what I want to do is I want to focus on the effect of this geopolitical tension on the second dimension which is how does the geopolitical tensions affect the trade [00:28:47] agreements and what does that do to third parties. So I'm not going to focus so much on the redistribution of Chinese trade but on the role of geopolitics on third party effects. So for example, the agreement with the US in the case of [00:29:01] Argentina, I say it's a great trade agreement with the for the for Argentina. It's a great geopolitical agreement for the US because the US has geopolitical objectives. He was they were talking [00:29:14] about French or they want to bring economic activity to countries which they feel more more aligned or more comfortable. But that objective of the US opened up very interesting opportunities for opening trade for [00:29:29] Argentina and for opening up the US market for Argentine products. And I think that's kind of interesting. So it was kind of the conversation was interesting because um for example we had to argue with them [00:29:42] well they were not going to open everything. So we said what what do we want them to open the the American markets to Argentine products? And we had to develop a methodology for that. [00:29:54] There what we use is Ricardo Houseman's product space methodology that the Ricardo Houseman at Harvard he developed a methodology where he says which goods are close to each other. So for example [00:30:06] if a country exports a good X and the countries that export good X also export good Y that means that X and Y are close. [00:30:16] So basically we tried to find all the goods that were close to the goods on which Argentina had a comparative advantage and we use that as an instrument to argue with them which are the goods that could should be open and they should open and actually what we [00:30:31] achieved is that basically they kept the reciprocal tariff on all goods and on about 2,000 products they basically retracted that reciprocal tariff to zero. So, so I think that was a very good outcome for Argentina and for [00:30:45] Argentina in terms of its own opening up also was quite interesting because with this trade agreement we had to open several sectors and remember we're in something called Merosour and Merosur somehow has very high external tariffs. [00:30:58] So this agreement with the US has allowed us to somehow break a little bit that barrier that Merkosur was and increase the opening up of the economy. [00:31:07] That's why I was saying that for Argentina it's actually a very interesting trade trade agreement. Now let me say one thing which is interesting. The US had this geopolitical objectives like French shoring and for example they open up the [00:31:20] aircraft industry to to Argentine producers and they also had their domestic issues for example pharmaceuticals you know like Trump is in this fight with pharmaceutical companies. So they opened up the pharmaceutical market to Argentinian [00:31:34] pharmaceutical companies which actually have a significant comparative advantage there. So so I think there's a mixture of the geopolitical issues and the domestic issues in the way the US approach this agreement. I would say on China it was [00:31:49] more there were not kind of any real restrictions. It was more like a surveillance thing like we want to know what's going on sort of request but not much more than that. Now [00:32:03] let me go just finishing to this idea said that this geopolitical tensions may they lead to more trade and not less trade. Let me challenge that view for a second and I want to put on the table one thing. Merosur was [00:32:18] negotiating with the European Union a free trade agreement and we've been negotiating that for 26 years. 26 years and suddenly we signed it and I don't [00:32:33] think that's independent of what's happening with Trump. So it's interesting because basically the US is kind of breaking this multilateralism or this multiarism is breaking because of the tensions Paul that you very well [00:32:47] described but it's generating this collateral avenues and for Argentina it meant that after 26 years finally we could sign the Merkosur European Union free we also signed a [00:33:01] free trade agreement with EFA. So suddenly kind of things had been blocked. So is may it be possible and I pose this as a question that the rupture of multilateralism may at the end led to more trade and not less trade. So I I I [00:33:15] leave that as a question which I think is a is interesting and I don't think there's an obvious answer. And the other the final point I want to make is in the first graph that Paul showed he showed [00:33:26] that trade was growing very strongly and then in the 2000s it stopped growing. [00:33:33] So now for 20 years we have not del globalized but the share of trade in world the share of trade has kind of stagnated. Okay I think there's several reasons for that for one reason is [00:33:48] basically that as China becomes has huge increases in productivity and becomes more similar to developed economies then there are less incentives to trade. So maybe there's a natural thing maybe that explains why the share of China was [00:34:01] falling before Trump. The second potential explanation is that a larger share of trade is digital, it's knowledge, it's goods, it's emails, it's a software, it's patches on software which is going from [00:34:16] one country to the other and that's very significant trade but it's not measured. [00:34:20] So maybe there's some trade that we're not measuring. I think that's a second hypothesis. And the third one has to do with something which um Intermit which I think intermittent [00:34:32] economist and oped two weeks ago and he said listen you know globalization why is globalization not prospering not not deepening and we are looking at tariffs [00:34:45] we're all looking at tariffs kind of all the attention is in tariffs but there's something much more damaging and much more devastating for trade tariffs which are standards, certifications, [00:34:59] sanitary requirements, because you have a tariff, if you put 10% 15%, 20%, certainly it's going to affect trade. [00:35:06] But if you put a sanitary barrier, it kills trade. It just goes to zero. So it's like an infinite tariff. No. And I think I I I see a lot of that in our experience in Argentina. A lot of our [00:35:19] exercising trade liberization has been much much more strongly focused on kind of reducing the this standards and their certifications. Actually this agreement basically allows for a reciprocal [00:35:34] recognition of certification. So I think that's also I think a point that is an very important part of this picture. Let me let me stop there. [00:35:42] >> Thank you. Thank you minister. And actually the deeper integration of Argentina both with the US and with Europe uh is actually quite striking in a short period of time but we'll come back to that. Governor Tolina over to you. [00:35:56] Thank you so much. Um first of all I really want to thank Mr. Aljadin Madame Georgiva for inviting us here and what a beautiful place. Uh it's my first [00:36:10] time in Alula but I loved it. Thank you so much. [00:36:15] Now coming back to the topic um being discussed. I think it was a very very interesting paper. Uh there are some reassuring message that came out of this [00:36:26] paper. Um one we are not del globalizing. So that's I think uh in a way a reassuring message. [00:36:37] Uh but also partly concerning because then the paper you argue that yes we're not del globalizing uh but free trade as we know it as you've taught us in school [00:36:50] probably is no longer there because um I would probably differ a little bit with the minister of Argentina whether it's more trade spec es especially when [00:37:03] you talk about comparative globally when you look at the whole world. Uh whether this attack on rules based regime is necessarily beneficial to the world, I [00:37:17] will I will I will leave it as a question. But it does bring very interesting points you know rather than just looking at the decline say in import uh from China to the US you've [00:37:30] looked at several elements and I found that to be very interesting particularly for uh emerging and developing economies like like Ethiopia and Africa there are very interesting insight that that it [00:37:43] brings um to show and particularly advantages in uh in price decline, in rerouting uh these are issues that that caught my [00:37:56] attention. I know you had a list of top 20 countries there um and you have Djibouti on on the top in one area by the way that exactly that [00:38:08] means Ethiopia because most of the the import that comes to Djibouti free trade is destined to the lion's share. [00:38:18] So I mean maybe you can look at that a little bit deeply in the future. Uh but clearly those benefits are quite valuable for it. We're already seeing the impact of this in you know we've [00:38:31] launched a major macro reforms. We've dealt with 50 years old distortion by you know with the support of the IMF by liberalizing the forex region market [00:38:47] determine exchange rate and minister with your remark this morning I agree with you macro reform actually is not anti-growth because in s context what we saw was [00:38:59] everything that needs to go up is going up everything that needs to go down is going down after this reform. We've seen significant reduction in inflation from above 30% to single digits, you [00:39:14] know, 9.7 9.7% this December. We've seen six 7x grows in our on our reserve accumulations grows. [00:39:26] Madame Georgiva you would be happy to hear this growth actually in Ethiopia is above prepandemic level now when we started this year the starts in July the [00:39:39] plan was uh I mean the projection was 9.2 grows but actually by looking at six months number we are now certain that we might actually grow double digits you [00:39:50] know 10.2% or so by by the end of um the year. Uh so micro reform works when institutions respond. That's what we saw. We've made the central bank [00:40:03] independence you know for the first time in decades an independent central bank. [00:40:08] Uh the prime minister spokes very strongly about that independence and we're seeing a significant result because of this. Now a couple of points I want to leave. if [00:40:21] if we want to see you know significant benefit for from trade that agility you mentioned in your paper that regional readiness is absolutely critical [00:40:34] in Africa's case uh you know this idea of inter Africa trade was more of a talk for for decades but I think because of the uncertainty in the global trading arrangements [00:40:48] countries have started to take this very seriously And we're beginning to see very encouraging uh results. I asked my team to look at uh you know the export numbers in Africa [00:41:02] and some of the numbers were a bit astounding. So 5x 6x grows for instance um trade between Ethiopia and Zimbabwe, [00:41:14] Ethiopia and and Rwanda, Kenya uh and and you would be happy to look at that number but of course uh there is a word of caution. One we're talking about a very small base. So statics as you [00:41:28] know when you you grow from a small base gives you a big statistics but the second important thing is there is lack of sustainability continuity. [00:41:38] One year you would see a significant export jump and then the next year it's not continuing. So a very predictable regional arrangements are absolutely critical if countries have to diversify [00:41:52] their their source of trade. In best case we actually look we have this notion of uh extended neighborhood. We don't just look at Africa for instance our trade with Saudi is one of the [00:42:04] highest 32% growth over the last uh five years. So significant amount of amount of growth. Let me stop there in the interest of uh time. Thank you. ## Q&A (00:42:16 – 01:02:51) [00:42:16] >> Thank you, Governor. So, let let's thank our three panelists, but maybe let's turn it over to Paul in case you have any reactions to the comments on the work you presented before we open with questions. [00:42:28] >> I can qu I can quickly um react, but I I want to make sure we have enough time uh for Q&A. So, what the first thing I want to say is thank you. Thank you very much for engaging with the paper. Uh I I'm [00:42:41] really uh honored and I I I I really thank you for this. Um let me just very respond to uh or or comment on each of the uh comments. Minister Albraim, thank [00:42:54] you for the comments. Um two points. The first one uh speed and agility of change. Absolutely. Uh if I had had a bit more time in the paper, I talk a little bit about this. we look, it's too early to look at the recent uh shock, [00:43:08] but if we look at the beginnings of the USChina uh uh trade war, we can see that different countries and different sectors uh reacted at different speeds in a way that we could have predicted [00:43:23] based on measures of the extent to which production processes can shift quickly. [00:43:28] Okay, we uh uh in joint work with a PhD student of mine, we've developed measures of production lengths. And it turns out that this is something that policy makers can use to try to predict which are the sectors that can maybe [00:43:42] move things more quickly. And then you mentioned the rulebased uh system. I 100% agree with this. This is my last slide on the bigger picture. To me this is the most you know we can talk [00:43:56] about this shifting and that shifting but we are in a world in which trade agreements are negotiated in a very different manner and that brings me to minister and I congratulate you on your deal. Um I would push back on the notion [00:44:10] that this is a development that will lead to more trade. It will lead to more trade agreements because we have, you know, given up on the multilateral system and obviously we're going to have to go to a series of side deals in some [00:44:25] cases that are going to generate more trade uh overall are we going to end up with more trade. I'm I'm a little bit skeptical and I also worry about the terms of those deals. I don't know the specifics. I haven't studied the [00:44:38] specifics of your deal, but we've seen some deals. the EU signed a deal with the Trump administration under some deal under some terms that at least in Europe created a bit of a backlash. So yes, we may have more trade agreements. Are we [00:44:53] going to have more trade? I'm not so sure. And then Governor Tolina um uh you also emphasized the rulebased system. [00:45:00] you emphasized the opportunities the increased trade within Africa um which uh both uh uh minister Ali Ibrahim and and and Minister Sturanager argued that that is very much part of the story and that's part of what I talk about in the [00:45:13] paper um and and it is true that out of shocks come opportunities come awakening it makes producers realize there's some things I was in a comfortable situation in some markets and now I need to switch [00:45:26] and sometimes that has good effects I come from I'm originally from Spain and Spain uh witnessed a very deep depress uh recession during the the great recession and out of that situation came [00:45:39] a very significant growth in exports trying to move away from domestic demand finding foreign sources of demand and and that's has had long-term effects on exporting so it's true that sometimes shocks come with reorienting that can [00:45:53] have good long run effects >> thank you Paul so I will start by asking each of our panelists this a a question following their remarks and then uh we have a question coming from the audience. If there are more questions, [00:46:07] please use your QR code and we will try to fit them in. And I will start with you Minister Halbraim and uh I would like to ask two questions. One is um uh as I think the presentation by Paul made [00:46:20] clear there are cases where there can be opportunities uh for instance price opportunities coming from the reorientation of trade between uh the US and China and I think actually Paul mentioned Saudi Arabia [00:46:33] explicitly as one country that could be benefiting because it will be importing things that don't necessarily have a domestic base and therefore will benefit from the price effects. This is I wanted to ask you if this is something that you [00:46:45] see uh happening in uh in the kingdom. And then the second question I wanted to ask you is I wanted to rebound on the remark you you made where you talked about if I understood correctly the right to market potential for emerging markets. And this is I think something [00:47:00] that is quite important to think about what is the development path, what is the growth path for many emerging market economies. That used to be something that was predicated on having access to a global market that was out there where uh the emerging market economies, [00:47:13] developing countries could enter and could compete and and learn and grow and and that may be more challenging now. [00:47:20] And so if you could articulate what your vision is for you know this right to market potential and whether there is enough of space between emerging market themselves to create uh that that broad market uh uh for themselves. [00:47:34] >> Thank you very much Pierre. I think uh I'll tell you uh on the on your latter question um it's very clear from our own experience that being steadfast with a [00:47:47] very clear transformation despite the headwind that happened uh was something that not a regret and with it came vision [00:48:02] 2030 Saudi vision 2030 wasn't just about setting ambitious schools. It was about changing how the government operates. Uh in addition to that, something we don't talk about a lot. We talk about performance results, policies, policy [00:48:16] discussion. Something happening underneath all of this is the building and the upgrading of institutional capabilities. Uh and that's a no regret. [00:48:26] And of course you know vision 2030 is also focused on diversifying uh our sources of growth but also on unlocking human capital potential human capital potential and in social capabilities [00:48:40] are a no regret and we've seen that uh that has paid off at times where we faced a lot of headwind. So emerging market economies today will not only have uh you know the luxury of plugging [00:48:54] into a rules-based system that is clear and require some negotiation, some discussion. They'll have to do much more uh much more that all economies should not only welcome but should push for and [00:49:09] actually solve from benefiting from that gap between the global economy operating at its full potential or not is temporary and we should not see it as something that is a given. We should [00:49:22] assume that the global economy should operate with all its players uh operating at their potential and actually we should encourage all the players to operate at at the potential and that will require better [00:49:35] institutional capabilities more negotiation and discussions um and uh continuous I'd say belief that the voice of the [00:49:48] emerging markets no matter how big or small that emerging market economy is matters uh and should be encouraged with other partners for the kingdom. We've seen that we've seen that you know we [00:50:00] used to be before vision 2030 our voice was loud and consequential in specific areas um uh energy or specifically oil [00:50:13] uh oil and gas diplomacy foreign aid and assistance. Since vision 2030, we've become more influential, more consequential, and more [00:50:24] uh of a co-author on many topics uh globally. And that's because we took it upon ourselves to unlock our potential. [00:50:32] And we've become a more integrated economy in the in the global economy. [00:50:38] And we're affected by more uh uh more of the changes. And as we succeed with our with our diversification agenda, we will be more uh exposed to changes and we'll have to deal with it through [00:50:52] institutional capabilities and through dialogue and through uh continuous innovation, policy design, policy uh uh tweaks, policy precision if you if you will and the power of the pen. Capital [00:51:07] is no longer uh not just for the kingdom everywhere no longer the main means by which you unlock your potential or become more resilient. The main difference today is how [00:51:20] fast you build institution capabilities and how these institution capabilities are always cutting edge uh and how fast you also upgrade these institution capabilities. As far as your first question, I think the kingdom [00:51:35] will always seek to be has always been and will always seek to be a long-term reliable partner. Today, one of the rarest things is uh the notion that a commitment made for example today will [00:51:49] be honored tomorrow. So trust >> and trust based partnerships is important. The kingdom has always demonstrated that. But in a world where this becomes more rare, that makes the kingdom stand out even more. We're [00:52:03] steadfast, long-term, reliable, and we believe in the quality of partnerships, not just the quantity of partnerships. [00:52:10] And that will help us uh and our partners uh preempt any of the challenges as this global trade system or global economic order continues uh [00:52:23] seeking or or trying to find itself. Uh we will continue strengthening our own capabilities and our competitiveness. Uh we've accomplished a lot through vision 2030, but there remains much more to be [00:52:38] achieved. We're not resting on our laurels or or uh over celebrating. There is more that needs to happen and will happen that will put us in a better [00:52:49] position uh when resilience is required needs to be cashed in and when uh uh an opportunity for the Saudi voice to shape the global economy also arises and [00:53:03] we'll continue to be a a source or a a beacon of pragmatism uh in our partnerships uh east and west. We want to be a a connection that creates a [00:53:16] platform that connects opportunities from all over the world and that also in the process helps us unlock our potential. [00:53:25] >> Well, thank you minister and certainly this is a a very uh very important vision uh very relevant for the rest of uh emerging market economies and and the world more globally. Let me turn to uh Minister Sutzenegger and and I will ask [00:53:39] my question and weave into it the question that is coming from the floor because they're they're related. The question coming from the floor which actually can be relevant also governor Toina you can come in on this is how are the panelists seeing EM's reactions to [00:53:53] this trade realignment? Are they veering to reciprocal protectionism? I think I know the answer from you on this or more openness or somewhere in between. And what I wanted to ask more specifically [00:54:07] to you minister is um the US is one of the major partners for Argentina but so is China and in the context in which you have these tensions [00:54:20] between these uh these big powers. Um, do you feel there is a need also on the part of Argentina to exercise caution and to make sure that you don't create [00:54:33] future vulnerabilities? How do you think strategically about this double dependency between uh trading partners that are actually reducing their bilateral exposure? [00:54:45] >> Excellent. So that can Yes. Is it working? [00:54:48] >> Yes. >> Yes. [00:54:50] >> No. In our case, our view is is very clear that we're all for openness. [00:54:56] The trade agreement with the US is just opening up with the US market, but that doesn't preclude our pursuing openness with other markets. In fact, I just mentioned EFA and uh and the European Union have been kind of implemented this [00:55:10] this year. No. So, so we're definitely kind of open to trade and we believe in free trade and we believe in the in the benefits of openness. So, so I so far it's not a tension. I was mentioning [00:55:23] that even the trade agreement with the US maybe has their own geopolitical objectives but really have not imposed on us any constraint on trading with other countries in the world particularly China. So, so we don't see [00:55:37] a a problem with that. No. And um and and the progress of Argentina on on trade has kind of two aspects. No, let let me go back to this idea of tariffs. For [00:55:50] example, Argentina has export taxes and has tariffs as well. We've been bringing those down. Of course, in order to bring those down, you have to bring down government expenditure because Argentina has a institutional setup that the national government is the one that [00:56:05] collects the trade taxes. So you need to bring down government expenditure and then you that gives you opens up the fiscal space to reduce export taxes which have been mostly wiped out and and also and also tariffs. But in the case [00:56:19] of Argentina, I would say the most important ingredient for us to increase trade is something that Argentina was never an input that Argentina was never [00:56:31] able to put on the table, which was the respect of property rights. [00:56:38] This is kind of the missing input that Argentina never could deliver on this. [00:56:43] And the reason it could never deliver on this is in two reasons. The first one is that always had a very vulnerable fiscal situation. And if the if the government has a vulnerable fiscal situation, it's going to mess up sooner or later. It's [00:56:56] going to increase taxes. It's going to expropriate. It's going to do something which is going to affect property rights. So the first for us, the first way of reestablishing strong property rights in Argentina is having a strong [00:57:08] fiscal result. And um and um uh the second way of strengthening property rights for us is deregulation because we also believe that every [00:57:22] regulation is a way of chipping away some of your property rights. Imagine that you have a real estate development, someone comes with rent control, it affects the value of your property, it's affecting your property rights. So, so [00:57:35] Argentina in this path of deregulating and having a strong fiscal is strengthening property rights and the results are already there. For example, in one year we've doubled our exports of minerals. Minerals is an export which is [00:57:49] very strong on property rights. We still export even having doubled this year we still export only a tenth of what Chile exports. So imagine how far away we are and what the potential is. But all the [00:58:03] misses missed missed opportunities that Argentina has. And the other and with this I finish Pierre is we have a very large energy complex. We have the second largest reserves of shale gas in the [00:58:16] world even larger than those of the US and Texas. And there the boom is already underway because again because we are strengthening property rights and people feel that Argentina is a trustworthy [00:58:29] place to to invest. And look at these numbers. Last year, Argentina exported $80 billion. In five years, oil and gas, we're going to be exporting $50 billion. [00:58:40] And this is already in the pipeline. So, so we're all for trade, but we also have to solve our problems. And our problems was basically having an economy where people can come invest and know the rules of the game are going to be upheld [00:58:55] and their property is going to be respected. [00:58:58] >> Thank you, Minister. It certainly is a case that when the environment becomes tougher, you want to improve your game at home. [00:59:04] >> Let me turn to you governor and I want to come back. You you you made some very relevant points on the need for regional integration particular for African countries. [00:59:13] >> Um and I wanted to ask you how important is the African continental free trade agreement uh in your view for for the region and also for for Ethiopia. Um, and do you concur also with uh with [00:59:26] Professor Entra's uh presentation that or if you could be a bit more specific on the kind of opportunities you would see as a result of this rerouting of trade for for the region as well. [00:59:38] >> Thank you. Thank you so much. Um on the importance I mean there is no question about it. FCFT is a very important instrument not just to increase trade flows but also as a driver for uh industrialization. Look when you look at [00:59:53] Africa in Africa trade it's just about 15%. [00:59:58] Compare that to Europe 60% Asian 30%. If we can bring it to at least Asian level we are talking about 140 billion annual which is 78% of Africa's GDP. So quite [01:00:12] critical but so FC FCF I think can help us realize that opportunity by providing institutional framework but this all depends on you know productive capacity [01:00:27] regional value chains trade and logistic reform that's why I've talked about importance of reform earlier for Ethopia this has been quite beneficial and we to answer your first question as well you [01:00:40] know we strongly believe in in in free trade. Vac has been a strong voice for regional trade played a very smart role for the realization of FCFT. We are the first signatory and we're now trading [01:00:54] under that that arrangement and as as I spoke earlier we are seeing very encouraging early results but it's too small. [01:01:04] So yeah it could be beneficial in this uncertain global world. I don't think regional trade would immediately compensate for what we lose uh from regional trade. It's not an immediate [01:01:19] shift but over time over time in the medium and long term it could be quite quite beneficial. So that's how we see it strategically trading regionally is absolutely critical and the the advantage in the logistics [01:01:33] in the linkages in the value chains is is quite important and we should focus on that. Thank you. [01:01:38] >> Thank you. Well, I'm told that we are uh running out of time, so I will have to bring this session to a close. Let me uh just say that I think I learned a tremendous amount. I heard about the opportunities that exist in this world. [01:01:52] I heard about the need to improve domestic frameworks, improve domestic policies, the need to improve integration regionally and more globally and that these are paths forward that will deliver growth for emerging market [01:02:06] economies and the world and they need to be seized upon. So with this, thank you very much for this first session. Thanks to our author and to our panelists. [01:02:14] Let's give them a round of applause. Much appreciation for our panelists and [01:02:36] moderator for an enlightening session. Esteemed guests, we will now take a short break and we kindly ask you to be back in 20 minutes. Thank you and we [01:02:47] look forward to welcoming you back.