Martin Wolf has an article in the FT today in which he asks why world trade is slowing. He offers three possible causes when asking:
Is it because the world economy has slowed? Is it because of the exhaustion of certain opportunities? Or is it because of protectionism?
He says it is for all three reasons but let me offer a fourth. We know that the majority of world trade is intra-group, i.e. it is between companies under common ownership. In 2002 the OECD estimated that 60% of world trade was in this category. It may well have increased since then.
We also know that this trade has been used for transfer mispricing purposes.
And we certainly know that some elements in this trade have been wholly artificial, being inserted to add a tax haven location into supply chains.
This then puts Martin Wolf's note in his article, that it is indisputable that real growth is down in the global economy right now and that the ratio of trade growth to real growth is also falling, into a possible context. I offer the suggestion that this may be because business is now shying away from these artificial tax haven trades. In the face of country-by-country reporting for tax maybe, just maybe, recorded diversions of trade to tax havens are falling although real trade is not being impacted at all, and this would create the phenomena he is observing in the data.
Maybe the ghost ships that claimed to sail to tax havens are departing the system. If so it would represent a major campaigning success. And a boost for the real world, whatever the data might imply to the contrary.
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There is only one question then now.
Is this permanent or a symptom of just lying low until our attentions shifts elsewhere?
Given country-by-country reporting is permanent I think it may be the beginning of real change
But maybe I am an optimist
Well, with optimism must come vigilance. I’d settle for that because that is a good result.
It’s not the first time that trade figures known to include fraud or legally-tolerated misrepresentations have been published without the necessary qualification.
The GDP and FDI figures for Cyprus spring to mind.
It’s not just the businesses, I can’t see many politicians being keen on stripping out numbers from growth and GDP figures. I’ve seen a few examples of how intra-trade works between the US and Mexico, honest reporting would make a big hit.
In that sense it’s no different to the way politicos have adopted a variety of dodgy metrics for things like employment/unemployment, house building, PFI, etc, etc. They had the boost when they took on board these ‘modern’ methods of accounting and reporting.