Globalisation in reverse gear as oil prices soar: Canadian reportMay 29th, 2008 - 1:01 pm ICT by admin
By Gurmukh Singh
Toronto, May 29 (IANS) Trade liberalisation and technology may have flattened the world, but rising transport prices will once again make it rounder, says a report by a major Canadian bank. In its study - “Will Soaring Transport Costs Reverse Globalization?”, the Canadian Imperial Bank of Commerce (CIBC) says soaring oil prices are driving transport costs to such levels that businesses will be forced to seek supplies locally, rather than importing at huge costs from China and India.
“Globalization is reversible. Higher energy prices are impacting transport costs at an unprecedented rate. So much so, that the cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today,” CIBC chief economist Jeff Rubin and co-author Benjamin Tal say in their report.
In fact, soaring global transport costs have already offset all the trade liberalisation efforts of the past three decades, the report points out.
If major cuts in tariffs and non-tariff barriers led to explosion of world trade, including the rapid industrialisation of India and China, during the past three decades, it says now “triple-digit oil prices, soaring transport costs, not tariff barriers, pose the greatest challenge to trade”.
Outlining how rising energy prices are set to roll back globalisation, the report says: “Back in 2000, when oil prices were $20 per barrel, transport costs were the equivalent of a 3 percent US tariff rate. Currently, transport costs are equivalent to an average tariff rate of more than 9 percent.
“At $150 per barrel, the tariff-equivalent rate is 11 percent, going back to the average tariff rates of the 1970s. And at $200 per barrel, we are back at tariff rates not seen since prior to the Kennedy Round GATT negotiations of the mid-1960s.”
Giving an example, the report says that while it cost only $3,000 to ship a normal (40-foot) container from China to the US in 2000, today its costs $8,000. And at $200 per barrel, it will cost $15,000.
Referring to two past oil shocks which led the US to cut imports from Europe and Asia and raise regional trade with Caribbean and Latin American nations, the report says the current oil crisis also points to similar trends as China’s freight-intensive steel exports to the US are falling by more than 20 percent on a year-over-year basis, while US domestic steel production has risen by almost 10 percent during the same period.
The high transport costs have also hit exports of low-value Chinese goods - such as furniture, apparel, footwear, metal manufacturing, and industrial machinery - to the US, the report points out.
It predicts that rising oil prices - and thus transport costs - will spell less Chinese and Indian competition for North American manufacturers, and more regional trade, benefiting Mexico because of its abundant cheap labour and proximity to the US and Canada.
“In a world where oil will soon cost over $200 per barrel, Mexico’s proximity to the rest of North America gives its costs a huge advantage. It seems that American importers are starting to do the math and already shifting some business from China to Mexico,” the report says.
- US pushes services liberalisation with Indian study - Feb 18, 2012
- Petrol price hike in the offing as crude soars - Mar 23, 2012
- For reforms, Pakistani daily cites India's example - Apr 03, 2012
- Oil prices rise - Feb 25, 2012
- Power to cost more in Delhi, Dikshit indicates - Jun 25, 2012
- Ecuador to deliver $538 mn worth of oil to China - Dec 10, 2011
- Indian Oil Corporation raises jet fuel prices by 4.5 percent - Jan 31, 2011
- People have to bear some burden of oil price rise: Mukherjee - Jan 28, 2011
- Aviation fuel prices raised 3.6 percent - Dec 15, 2010
- Diesel price deregulation not inevitable: Basu - Mar 03, 2011
- Oil plummets on US negative credit outlook - Apr 19, 2011
- Oil firms mulling another price hike - Nov 01, 2011
- Ministerial panel to decide on diesel price hike next week (Lead) - Dec 15, 2010
- Fuel prices to fall if global prices dip further (Lead) - Aug 09, 2011
- Petrol price to be cut if global crude prices slip further: Minister - Aug 09, 2011
Tags: canadian imperial bank, canadian imperial bank of commerce, chief economist, equivalent rate, foot container, gatt negotiations, global transport, gurmukh, imperial bank of commerce, jeff rubin, mid 1960s, rapid industrialisation, rising energy, rubin and co, tariff barriers, tariff rate, tariff rates, three decades, trade liberalisation, transport costs