Global Pivots That Will Define The Trade Landscape
The Politics Behind Slower Growth in China
China has, in recent years, driven near 30% of global growth. But now, with President Xi Jinping’s policies to restrain the domestic technology and property sector, a slowing Chinese economy could significantly influence regional and economic growth worldwide. This is likely to have a knock-on effect on financial markets and supply chains in the coming years.
Oil Prices Continue to Break Records
The price of oil is likely to remain high in the light of current geopolitical developments. Experts have predicted that the resetting of oil prices back to the “normal” level would be disruptive and an unlikely outcome in 2022 and beyond. Download this year’s Future of Trade 2022 report to explore the key drivers behind the oil pivot that could define the geopolitical landscape.
How will The rise in debt defaults impact trade and geopolitics in the coming years?
Download the 2022 report to find out.
The Rise in Regional Trade Agreements (RTA's)
Opportunities
The political will to participate in RTAs will grow
RTA's have emerged between countries and entities in different regions and continents (for example, the EU-Mexico or the US-Israel trade relationships).
RTA's will have a knock-on effect on policy agendas
New-generation RTA's increasingly cover trade in goods and relevant regulatory areas, including trade in services, cross-border investment, competition policy, intellectual property rights, and environment and development cooperation.
Risks
RTA's sometimes result in inward-looking, discriminatory protectionism
Large RTA's that cover a large share of global trade can potentially have harmful effects on non-members, leading to net trade diversion rather than net trade creation
Overlapping RTA membership could cause inadvertent and unnecessary conflict
With increasing numbers of countries being members of several RTA's simultaneously, this could create competing and possibly antagonistic blocs that would erode multilateralism. Overlapping membership could also pose significant administrative burdens for small countries with limited capacity to negotiate and weak institutional memory.
The Politics of Supply Chains
94% of Fortune 1000 companies reported experiencing supply-chain disruptions from the crisis due to an over-reliance on foreign suppliers.
Building supply chain resilience requires companies to build a more localised supply chain to manage risk. With the pandemic now coming under control, will supply chains ever return to ‘normal’?
The Future of Trade 2022 report discusses several factors spanning the political, financial, and economic realms and how they are likely to shape supply chains in the future.
Policy Recommendations
Businesses
- Firms should further combine the advantages of domestic inputs to production with opportunities offered by offshoring and international trade.
- Firms should upgrade investment in digital technologies that can improve information systems for risk management (such as with applications of the Internet of Things).
- To ensure robust and resilient production, risk management and production models should shift from just-in-time systems to placing a greater focus on long-term strategic considerations and effective partnerships.
- Companies should not only diversify supplier connections but also use and further build long-term relationships, which are associated with faster recovery after shocks.
Governments
- Governments should maintain an open trade and investment environment; in so doing, it is critical that policymakers provide support to key sectors to recover from the COVID-19 crisis.
- Governments should prepare for the next crisis (and the next pandemic or significant climate event) by incentivising firms to integrate risk awareness, risk management, and resilience strategies into core business models.
- In collaboration with the private sector, governments can collect and share information on potential bottlenecks upstream in supply chains. Stress tests for specific supply chains are an example of this.
- Governments should enhance systems to better assess oil-price dynamics based on analytics and machine-learning models, such as stream learning and usage of the Google Index.
Explore the Next Chapter
Chapter 3: Technology and the Future of Trade
Download our Future of Trade: Special Energy Edition Report
Energy, Markets, Trade & Transition
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