With vaccine rollout gathering steam around the world, many are hoping the past year of lockdowns, economic hardship and unprecedented global anxiety will soon be behind us. However, there is no return to business as usual anytime soon. The small business and services sectors of most economies have been decimated, and government money hasn’t flowed to them in a way that is going to prevent permanent closures. Despite the challenges ahead, countries are saying all the right things about the need to keep borders open and trade flowing. For example the G7 is vowing to “cooperate on a modernised, freer and fairer rules-based multilateral trading system that reflects our values and delivers balanced growth with a reformed World Trade Organisation at its centre.”
Yet as they say this, the WTO remains dysfunctional, technical barriers to trade persist among G7 members and protectionism is slowly creeping into official public policy. Here are three trends emerging as we look at what global trade flows will look like in the weeks ahead.
1. Growth will be sluggish
The WTO is reporting that the promise of fourth quarter growth in global trade in 2020 appears to be short lived. The recent update shows that while export orders (goods that must be procured from abroad) and automotive products – two of the more reliable measures of global trade growth have peaked and are stalled leading into Q2 of 2021. Furthermore, other key indicators such as container shipping have also started to decline in early 2021. It is obviously too early to get a full picture of the year and much of it will depend on how effective vaccination efforts are around the world. The one good piece of news is that the nearly 10% drop of global trade in 2020 isn’t likely to repeat in 2021. But the mantra of “betters days are ahead” is cold comfort for far too many businesses.
2. Supply chains are being re-evaluated
One item to watch now and throughout the year is whether COVID-19 will alter the supply chain practices of businesses. For all the talk of self-sufficiency, buying local and lessening reliance on markets like China, offshoring and global sourcing – staples of globalization and international trade for decades – aren’t easy to undo. Every link broken in a supply chain comes with its own problems: new partners, new regulatory issues, new logistical issues and new tax and tariff obligations. In short, any changes in sourcing come with their own disruptions. For many businesses, these added costs simply won’t be worth it. For others, lessening reliance on some in their supplier network will bring a longer-term payoff. We’ll be watching these movements closely.
3. Free trade negotiations are low priority
One of the biggest predictions we’ll make for the months ahead is that bilateral, plurilateral and multilateral trade negotiations aren’t likely to be top of mind for most governments. While free and open trade will remain the mantra, we shouldn’t expect any new ambitious global deals for the foreseeable future. A recent New York Times story states that the Biden administration, like its predecessor, doesn’t see free trade as an end in and of itself, nor as a bedrock principle of economic growth. Lowering tariffs will work for some while raising them will work for others. Anti-free traders used to cry for “fair trade” whereas last month’s G7 communiqué lumps “free and fair” into the same sentence as though that’s always been the case. Export dependent countries who sing the praises of open and duty-free borders are right to be worried which will also be critical to watch in the days ahead.