5/7  BIS central bankers' speeches  Trade has been facing a combination of structural and cyclical headwinds since the global financial crisis: The global merchandise trade-to-income ratio has stagnated since 2010. China’s imports of intermediate goods is growing at below 10%, compared to more than 20% in the early 2000s, creating a drag along supply chains across Asia. This is partly cyclical, reflecting slower growth in China. But it is also structural – reflecting a reconfiguration of supply chains and China’s increasing insourcing of intermediate inputs. As if these cyclical and structural headwinds are not enough, we are now facing the uncertain prospect of policy measures against free trade, especially in the US. There is talk of: rejecting TPP and re-negotiating or even repealing NAFTA and other FTAs; imposing a border tax adjustment that would in effect impose the corporate tax rate on imports; and labelling major trade partners as currency manipulators and imposing hefty tariffs on them. Some of these actions may well attract retaliatory measures, leading to trade conflicts with disastrous consequences for the global economy. In all likelihood, it may not be that bad. The contours of the incoming US Administration’s trade policies are highly uncertain. There remains within various arms of the US establishment a strong belief in the benefits of an open global trading system and the risks of punitive trade restrictions. But there could be some limited anti-trade measures such as targeted tariffs on selected products or industries.

Several analytical approaches for the identification of the factors contributing to the building up of systemic risk may be used and different policy tools may be employed to address them. One policy instrument introduced by Basel III is the countercyclical capital buffer. In line with our past experience of dividing responsibilities, the Ministry of Finance will implement countercyclical capital requirements from 2013. Norges Bank will make recommendations for its buffer decisions. We therefore need to strengthen our understanding of macroprudential regulation and develop relevant analytical tools for our recommendations. The financial crisis called renewed attention to the fact that developments in the real economy and the financial sector are closely linked. In response, Norges Bank has decided to provide monetary policy and financial analyses in a joint report published quarterly as from 2013. The reports will form the basis for both monetary policy decisions and for our advice on the buffer. The primary objective of monetary policy is low and stable inflation over time. We operate a flexible inflation targeting regime, which also aims at stabilising economic activity. Furthermore, Norges Bank gives weight to the risk that a prolonged period of low interest rates could lead to elevated risk-taking and excessive debt accumulation in the household and business sectors. There is always room for improvement. We will seek to improve systemic risk indicators and macro-stress testing approaches, keeping them at the research frontier. We will also work to better incorporate the financial sector in our macroeconomic models.