Key Drivers Impacting Cross-Border Trade in the Years Ahead
Lower Trade Barriers
Protectionism is costly and distortionary. New economic and political paradigms will lower trade barriers and reduce reliance on domestic demand. Increased regionalism and new bilateral and regional trade agreements will drive cross-border trade in new sectors.
Broad-Based Innovation
The introduction of transformative technologies will dominate the global trade outlook. Digitalisation will make trade more efficient and transparent. Blockchain and fintech could help close the gap in trade finance. This could create a global trade super-cycle.
Strategic Geopolitical Considerations
Geopolitics will drive the need for more bilateral trade to consolidate essential geostrategic ties, particularly for the major world economies. The need to protect countries' strategic interests and weaknesses in specific sectors will continue to be a decisive influence on the direction of trade.
Increase In Services Trade
The gap between trade in goods and trade stands to narrow. Services trade will expand significantly in developing economies, due to vast digital infrastructure improvements. This could see some markets transition from middle- to higher-income status.
Commodity and Energy Market Developments
High fuel and energy prices will have mixed impacts on cross-border trade, mainly benefiting exporters. High fuel prices impact shipping costs, contributing to backlogs across supply chains. This will mean continued upside price pressure.
Discover new insights, expert contributions, and what the future of trade means for your business.
DMCC Commodity Trade Index
The Future of Trade 2022 report presents the third iteration of the Commodity Trade Index, reassessing the performance of top trading hubs and comparing how the relative rankings have changed over time.
The USA is the top trading hub on the 2022 index, with a commodity index score of 58%.
This is 5% above the USA's score in the 2020 index when the country also took the top position. Meanwhile, the UAE stands in second place, with a score of 50%.
Key Sectors Behind Trade Recovery
Manufacturing
Restarting the manufacturing sector will be a top priority for key manufacturing hubs like China, Japan, India, Russia, Germany, Turkey, the UK, and the USA.
Trade could be further boosted within the Middle East, particularly in the pharmaceutical industry, if governments invested in R&D and encouraged local production through regulatory changes.
Maritime trade
More than 11 billion tonnes of cargo were carried via sea in 2019, including vital food and medical goods, energy, raw materials, and manufactured goods. Despite the disruption of shipping-related services due to COVID-19, the digitization in maritime logistics boosted the ability to deliver essential port activities and meet market demands for essential items. The growth of maritime trade will continue over the years.
Energy
Oil exporters can expect to reap the benefits of higher global oil prices and positive COVID-19 developments, including higher vaccination rates across many economies.
Policy Recommendations
Businesses
- Be ready to increase information sharing through telecommunications using traditional and new technologies. This can help anticipate, buffer, and manage unexpected shocks from geopolitical tensions and natural disasters.
- Consider how to streamline and digitalise trade facilitation processes.
- Firms and financial intermediaries should coordinate to tackle exposures within supply chains through enhanced inter-company credit.
- In coordination with the government, there should be an increased strategic emphasis on economic diversification to support resilience and sustainable initiatives against oil-price shocks and climate-related uncertainty in production.
Governments
- Governments will continue to prioritise closing the trade finance gaps through export credit agencies, expanding working capital programmes, and new facilities to support SME exporters.
- Trade promotion should be a key policy priority for governments.
- Government-guaranteed bank loans should be used to purchase trade receivables and inject cash into supply chains.
- Increase logistics performance. Reduce trade costs through improved quality of trade and transport infrastructure, greater efficiency of customs and border clearance and ease of arranging competitively priced shipments.
Explore the Next Chapter
Chapter 2: The Geopolitics of Trade
Download our Future of Trade: Special Energy Edition Report
Energy, Markets, Trade & Transition
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