What themes are dominating global trade?

Global trade is a hard topic to tackle, as such, we discuss the main topics that are changing and challenging global trade today.

International Business Expert, Greg Smith, discusses the report below on key challenges to trade in the coming months as part of the Business Perspectives Podcast Series by Hawk FX. To listen to it, click on the link below.

Geopolitics Challenge the Future of Trade

In the last decade, barriers in major trading hubs have decreased, but global trade has remained sluggish. It’s performance has been stalled by trade negotiations and non-tariff barriers hindering global trade growth. Political changes such as the presidency of Donald Trump and Brexit have also had significant effects on businesses and trade.

Global Trade’s Digital Revolution

The development of blockchain, advanced robotics, and the Internet of Things presents a profound shift for the future of trade. It could be the answer to a lot of the problems that it faces.

For example, Blockchain, while still not deployed at an industrialised scale, will begin to streamline business efficiency for global importers and exporters; reducing costs, increasing productivity, and driving economies over the next decade.

Digital Trade Finance

Traditional debt finance – bank loans, overdrafts, Letter of Credits, export credit, and insurance – accounts for roughly 80% of financing for world trade. However, due to strict collateral needs and credit history checks, 50% of SME funding applications are rejected by banks.

This has resulted in a $1.5 trillion gap in trade finance. A big problem slowing down growing trade, but as digital trade finance technology becomes a solution for start-ups and SMEs around the globe looking for funding, the problems will be no more.

The Shift Towards Asia

As a sense of trade protectionism overtakes the West, China is emerging as the champion of globalisation. Their Belt and Road initiative aims to connect markets across Asia, Africa, and Europe by expanding maritime, rail and road networks, and infrastructure.

The scope of the initiative is vast, its aim is to develop trade links between 4.8 billion people in nearly 70 countries with economies worth around $21 trillion, about 62% of the world’s GDP.

New Global Manufacturing Hubs are Emerging

As China’s economy develops, around 100 million labour intensive manufacturing jobs will move to other low cost countries including Vietnam, Mexico, Myanmar, India, Indonesia, and Kenya.

Although none of them have yet made a significant impact on the global economy and trade, these regions have a wealth of resources at their disposal. This makes them likely to play major roles in global trade in the next decade.

Reduce, reuse, recycle and return will Transform the Future of Trade

With the decline of natural resources and the rise of social responsibility, more and more consumers are demanding ethically sourced and environmentally friendly goods. Sustainable supply chains will increasingly reduce the impact on the environment as well as unlock opportunities to improve operational efficiencies.

Furthermore, as governments around the world enforce energy and resource efficiency policies, sustainable business practices will have the competitive advantage in the years to come.

Trade Protectionism

It’s impossible not to highlight the current global world order and protectionism rising when discussing global trade. If trade protectionism continues to dominate the world could transition from a globalised system where countries are interconnected through trade, to a more multipolar system with several regional centers.

While the development of such a scenario is dependent on the policies set out by future governments the prominence of globalisation as a predominant economic, strategic, and political force that has narrowed the wealth gap between rich and developing countries can not be denied.

Looking forward

In light of the themes we have highlighted above, we are witnessing the most rapid expansion of the middle class the world has ever seen. Experts estimate that the middle class will soon form the majority of the global population for the first time. This will drive a surge in consumer demand where much of the new consumer demand will come from emerging urban clusters in Asia, particularly in China and India, and to a lesser degree in Europe and the US.

Although the changes that global trade faces may be unpredictable, new challenges will create opportunity for those who are enterprising enough to take advantage of the opportunities available overseas. If you would like to find out more about how you can develop your overseas operation or would like some help evaluating new growth markets then please feel free to get in touch.

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Greg Smith, in the Business Perspectives by Hawk FX podcast series, introduces you to the main topics changing and challenging global trade today. To listen, click on the image below.

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