The Economist 20161001 ed79b8

68 Finance and economics The Economist October 1st 2016
2 says that including such a controversial
provision in TTIP was probably a mistake;
legal systems in America and Europe are
developed enough for investors not to
need the extra legal certainty.
The short-run trade impact of the collapse
of TPP and TTIP would not be huge,
because of their focus on rule-setting rather
than tariff-scrapping. But it would mean
an American retreat from its leadership
role in global trade liberalisation. Mr
Obama has advertised TPP as essential if
America, not China, is to set the “rules of
the road” for trade in the 21st century.
A trade agenda led by China would be
less ambitious than the American-led one.
Hopes for global rules covering trade unions,
competition from state-owned enterprises
and free movement of data would
fade, in favouroftariffreduction. Attention
would shift to the Regional Comprehensive
Economic Partnership (RCEP), a more
traditional deal between the ten members
of the Association of South-East Asian Nations
and six other countries, including
China, India and Japan.
RCEP would, however, harvest much
more ofglobal trade’s low-hangingfruit. Its
member countries cover 36% of global
goods exports in 2015, compared with 28%
for the TPP. Tariff walls protecting emerging
markets are much higher than those
around developed countries—China still
has on average 10% tariffs, compared with
5% in Europe and under 4% in America—so
the immediate boost to the economy from
lowering them would be higher.
As for the WTO, it will for now push
“plurilateral” deals of its own, which embrace
enough WTO members to be significant
but which avoid the quagmire of having
to secure the agreement of all its 164
members. It already boasts some successes:
in September, for example, China started
cutting tariffs on technology goods as
part of the plurilateral Information Technology
Agreement.
Indeed, the failure of TPP and TTIP
could provide an opportunity for the WTO
to re-emerge as the main forum for the
trade-liberalisation agenda. A return to the
ambitious visions of the past, however, is
unlikely. Mr Azevedo can imagine the
WTO brokering another global trade deal,
but only when expectations have been
managed down from Doha. Above all, the
politics needs to be fixed. Few political
leaders around the world have done much
to squash the anti-trade bug. To them Mr
Azevedo says: “You have to speak up for
trade.” But Mr Trump is speaking up for
protectionism; and Mrs Clinton would
rather change the subject. 7
The Mexican peso
Slip slidin’ away
Fearofa Trump presidency plays havoc with Mexico’s currency
INVESTORS in Mexico were among
those cheered by Hillary Clinton’s
strong performance in the American
presidential debate on September 26th.
The country’s ailing peso has lost12% of
its value against the dollar this year. But
either side ofMrs Clinton’s first joust
with Donald Trump it climbed by 2%.
The linkbetween the peso and Mr
Trump’s chances ofbecoming president
seems clear enough. The Republican has
talked loudly about withdrawing from
the North American Free Trade Agreement,
raising tariffs on Mexican imports
and taxing remittances. How realistic any
ofthis is, and what effect it would have
on the Mexican economy, is unclear. But
his hawkish trade policy gives investors
plenty to worry about.
The peso is a highly liquid currency
frequently used to hedge against exposure
to global risk. It fell sharply after
The campaign trail
Mexican peso per $
Inverted scale
Jan Feb Mar Apr May Jun Jul Aug Sep
2016
Source: Thomson Reuters
16
17
18
19
20
21
Britons voted in June to leave the EU,
even though Mexico and Britain do little
trade. It is now being used as a hedge
against the possible turmoil ofa Trump
presidency. “The peso is seen as the
purest proxy for the American election,”
says Andrés Jaime ofBarclays Capital.
The peso’s descent bothers the Mexican
government because it draws unwanted
attention to the country. “Investors
are wondering ifthere is
something wrong with Mexico that
they’re not seeing,” says Luis Arcentales
ofMorgan Stanley. The central bank,
which was meeting as The Economist
went to press, may try to support the
currency by raising interest rates, currently
at 4.25%, for the third time this year.
A widening current-account deficit and
increasing debt argue for tightening; a
second-quarter contraction ofGDP and a
desire to wait until after the American
election might argue against.
Even a rate rise would be unlikely to
stem the peso’s slide should Mr Trump go
on to win. The exchange rate, currently
19.6 pesos to the dollar, could well lurch
towards 22. Yet although Mexicans need
little excuse to excoriate Mr Trump, they
cannot pin all their currency’s ills on him.
Over18% ofgovernment revenues come
from oil. That share is shrinking but low
oil prices and declining production have
still hit the government budget. A contraction
in American industrial production
and weakeconomies in Latin America
are also muting external demand. A
Trump defeat will solve only one of the
peso’s problems.
Oil
The little cartel
that could
OPEC agrees its first production cut
since 2008
DOES OPEC matter? Those who dismiss
the significance of the Organisation of
Petroleum Exporting Countries, a producers’
cartel, cite at least three reasons to
think not. Its 14 members cannot agree
among themselves, not least because they
include bitter regional rivals like Iran and
Saudi Arabia. Even ifthe cartel could agree,
its pacts would not work, because so much
crude oil is now produced outside the club,
in the hinterlands ofSiberia or the fracking
fields of America. And if OPEC’s agreements
will not work, its members will
have no reason to stickto them.
Those who think OPEC still matters can
now make one powerful counterargument:
Algiers 2016. On September 28th
OPEC members gathered there foran informal
meeting and agreed to cut output for
the first time since 2008. The agreed cut1
The price of disagreement
Brent crude oil price, $ per barrel
2011 12 13 14 15 16
Source: Thomson Reuters
140
120
100
80
60
40
20