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Chapter 1

The Future of Trade

Global Trade Dynamics in the Years Ahead

The global trade landscape is undergoing significant transformation due to geopolitical shifts, technological advancements, and sustainability initiatives. Despite challenges like high inflation, economic slowdowns, and conflicts, trade is expected to grow gradually. Chapter 1 explores the transformative forces of regionalisation, AI adoption, the global shift towards cleaner energy, and the future challenges and opportunities they present to global trade

Surge in Digital Services and E-Commerce

The pandemic has permanently altered consumer behaviour, notably increasing the demand for digitally delivered services and products. The B2B e-commerce market alone is expected to grow at an average rate of 14.5% through 2026 driven by major Chinese retailers such as Alibaba, JD.com and Pinduoduo.

Services Growth Outpacing Goods

Goods continue to make up the bulk of global trade volumes – at 75 per cent of the total $31 trillion - but services are catching up fast. In 2023, services trade grew by 9 per cent compared to 6 per cent for goods, a sign of the shifting importance of services in the global economy. 

Sustainability Gives Competitive Trade Advantages

As the global sustainability movement gains momentum, the connection between trade and innovation becomes increasingly robust. Clear challenges as well as unique competitive advantages are emerging at the regional level.

Change In Primary Commodity Prices

Red Sea attacks borne out of the evolving crisis in the Middle East has disrupted about 10% of global seaborne trade, including for crucial commodities like grain and oil. This has led to diverted maritime routes and pushed oil prices to US $80 a barrel, heightening transport costs and exacerbating commodity prices and inflation.

AI Driving Efficiencies

The profound influence of AI on global trade will have far-reaching implications. It can revolutionise the current practices of trade, spanning across supply chain management, logistics, market analysis, and customer engagement.

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DMCC Commodity Trade Index

The Future of Trade 2024 report presents the fourth iteration of the Commodity Trade Index, reassessing the performance of top trading hubs and comparing how the relative rankings have changed over time.

01 - Leadership in Index

The United States leads the 2024 Commodity Trade Index with a score of 59%, driven by several factors including its increased share of gold since 2022 and the presence of major commodities traders like Cargill and Koch Industries.

02 - Significant Players

UAE ranks second with a score of 50%, performing strongly due its oil supplies, proximity to key markets, strong logistics infrastructure, and attractive tax regime. It placed ahead of Switzerland, Singapore and Hong Kong.

03 - Index Trends

There were notable shifts in the rankings due to geopolitical conflicts, which led to supply chain disruptions and commodity price rises, which strongly impacted the mid-range performers in 2024.

Drivers and Dynamics of Trade Resilience

Economic Slowdowns in China and Europe

Sluggish economies in China and Europe, exacerbated by inflation and structural declines in productivity, are expected to subdue consumer demand and impact trade growth.

Inflation and Interests Rates

Countries worldwide face high inflation due to COVID-19, supply chain issues, and the Ukraine crisis, impacting consumers and businesses. While inflation in the UK, U.S., and EU peaked in 2021 and is now declining, it will likely remain above target until 2025. Consequently, global interest rates will stay high as monetary policy struggles to control inflation. This "higher for longer" stance is supported by the Bank of England and the U.S. Federal Reserve, despite their interest in lowering rates.

Dollar Appreciation

The appreciation of the U.S. dollar has slowed global trade, as its dominance as a trade currency means a stronger dollar raises prices for U.S. exports and affects countries with dollar-pegged currencies or large dollar reserves. In 2022, the dollar constituted 58.4% of global foreign exchange reserves and reached a 20-year peak.

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Recommendations for Business and Government

Business Recommendations

  • Diversify Export Markets. Despite slow growth, businesses should diversify their export markets, particularly in North America, Asia-Pacific, and Africa, to capitalise on growth opportunities in these regions.
  • Reconfigure supply chains against geopolitical shifts. Geopolitical tensions reshape trade flows, offering challenges and opportunities. To adapt, businesses must build flexible supply chains, explore new markets, diversify suppliers, and invest in alternative sourcing to mitigate disruptions.
  • Mitigate macroeconomic risks. Amid global economic uncertainty, businesses must monitor economic conditions, currency fluctuations, inflation, and taxation. Mitigate associated risks through strategic planning.
  • Invest in digital transformation and innovation. AI's rise in trading systems revolutionises business. Companies benefiting invest in understanding and use case development, while those not risk losing to competition.

Government Recommendations

  • Build new trade relationships. Governments must prioritise trade promotion and forge partnerships beyond traditional markets. Encouraging exports to high-growth regions builds new consumer bases, offsets slow trade growth, and enhances economic resilience.
  • Invest in digital infrastructure and innovation. Governments must invest in digital infrastructure and innovation ecosystems to tap into the growth potential of digital services trade. Supporting AI technologies and digital trade platforms fosters economic growth and competitiveness.
  • Strengthen industry supply chain security. Amidst regional competition, governments must prioritise supply chain security. Diversify sourcing, promote domestic production, and collaborate with international partners for reliable access to critical resources.
  • Facilitate regional integration and cooperation. Geopolitical tensions drive regional trade flows. Governments must promote integration, cooperation, and cross-border facilitation to seize opportunities, mitigate risks, and foster resilience and sustainable development.