The ‘New Normal’ of Trade

The current global economy is in dire straits and the COVID-19 pandemic has caused the fastest and deepest economic shock in history. The impact on trade has been unprecedented.

The pandemic hit at a time when trade was already weak, largely driven by trade tensions between the US and China.

Geopolitics and the recovery from the COVID-19 pandemic will define the landscape for trade growth in the 2020s.

The Impact of a Less Connected World

US AND China Trade Tensions

The increasingly antagonistic relationship between the US and China has further weakened the geopolitical order, reducing the potential for cooperation in the face of global crisis. As a result of this, the global economy has experienced a significant spill-over effect where the WTO reported that global goods trade fell by 3 per cent to US$18.89 trillion.

The COVID-19 Pandemic

No other crisis has impacted international trade as much as the COVID-19 pandemic. While it is expected that per capita GDP will return to pre-crisis levels in eight years, recovery will be dependent on the effectiveness of the public health and economic response by governments, and the eventual development and mass roll-out of a vaccine.

Experts believe “it will be the worst year for globalisation since the early 1930s.”

China’s Successors: The New Drivers of Global Trade

Through on-shore manufacturing, China is moving towards becoming self-reliant. The evolving Chinese economy will facilitate the emergence of new trade hubs that focus on manufacturing, finance and technology will help define the Future of Trade.

Manufacturing

Other countries’ manufacturing capabilities will gain more prominence as they inherit China’s export business, especially from the US.

Finance

Key finance centres across Asia will challenge the New York-Hong Kong-London-Tokyo axis as they build their reputation as strategic international finance hubs.

Technology

Manufacturing will move closer to centres of consumption, as the industry improves on automation and additive manufacturing technologies.

DMCC’s Commodity Trade Index

The Commodity Trade Index (CTI) ranks ten of the key commodities trading hubs on 10 indicators across three factors to produce an index score.

The US marginally surpasses the UAE in 2020 by only 1% due to its high rank in institutional factors (86%), and the second-highest rank for commodity endowment factors. The UK ranks well for trading and institutional factors, rounding out the top three.

Recommendations

Business

  • Be ready to adapt to on-going changes in the trade landscape, as well as more modest trade growth overall. On-going changes will require consistent board-level and senior executive attention.
  • Increase investment in technology to reduce trade costs and open new markets.
  • Advocate for trade policies from governments that support technology, cross-border services, and infrastructure investment to open new opportunities for trade.
  • Expect to meet resistance – business needs to be a force for open trade like never before; business coalitions should be vocal on the big issues impacting trade.

Government

  • Take a leadership role in pushing for global standards around the implementation of technology in trade.
  • Support cooperative efforts at the international level which opens up opportunities for trade in specific areas, such as services or data.
  • Seek input from business about removing barriers to trade and enabling businesses to drive the recovery.
  • Increase investment in key trade-related infrastructure for both goods trade (roads, ports, customs facilities) and services trade (digital infrastructure, education)

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