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The Future of Global Trade

July 11, 2022


“Do you ever find yourself looking back?” asks Craig Jarrow (@TMNinja) author of Time Management Ninja. “To the way things were? To how you used to be? While you may long for the ways of yesterday, they are just that, yesterday. After all, the past is in the past. You must live in the present.”[1] That’s a message supply chain professionals and politicians need to grasp as they grapple with current supply chain snarls. Many professionals long to return to the days before trade wars erupted and the pandemic swept around the globe. But as US trade representative Katherine Tai, recently stated, “We cannot just go back to the world in 2015 and pretend like these things didn’t happen.”[2] Since we can’t go back and must live in the present, we also must prepare for the future. So what might the future of global trade look like?


The Importance of Global Trade


Although there is a lot of talk about near-shoring or reshoring manufacturing and the need to reduce America’s trade deficit, global trade remains an important aspect of the global economy. During the height of the Second World War, economist Otto T. Mallery wrote a book entitled Economic Union and Durable Peace in which he wrote, “When goods don’t cross borders, soldiers will.” The latest evidence of this truism is in Ukraine, where NATO allies are supporting efforts to preserve democracy and keep essential exports flowing. Just as important as keeping the peace, global trade also supports a healthy global middle class. Maritime historian Gregg Easterbrook (@Easterbrook) reminds us that most global trade is conducted via the world’s oceans and one result of having safe ocean routes “has been an explosion in global living standards.”[3] And, before the pandemic struck, Leslie Griffin (@LeslieinBoston), a principal with Allinea, reported that 40 million U.S. jobs are dependent upon trade.[4]


When the pandemic swept around the globe in 2020, global trade took a severe hit. In July 2020, Analysts from the Boston Consulting wrote, “The COVID-19 pandemic has delivered perhaps the greatest shocks to international trade since the Great Depression. Global trade in 2020 is projected to decline by 20% according to our baseline scenario for economic recovery, and it is not projected to regain its 2019 absolute level of $18 trillion until 2023.”[5] And that prediction didn’t appear to take inflation into account. They concluded, “Regardless of when the top-line numbers fully recover, however, the global trade landscape will still look dramatically different as companies shift their focus from fighting the pandemic to winning the post-COVID-19 future. As it destabilizes economies, intensifies geopolitical frictions, and exposes the risks of current global manufacturing and supply networks, the pandemic is also likely to redraw the map of world trade.”


As 2020 began to wane, global trade professional Michelle Frennier wrote, “Reliance on the global market has forced international trade teams to evaluate the depth and breadth of lockdowns on their supply chains. The pandemic shined a spotlight on the dependence of many companies on a limited number of suppliers, primarily in China. From widespread supply shortages to dwindling demand, the subsequent effects on the global economy are likely to have lasting impacts on international trade.”[6] Supply chains are still reeling in the wake of the pandemic and the future of global trade remains uncertain.


The Way Ahead


To move forward, insists global business columnist Rana Foroohar (@RanaForoohar), business leaders and politicians must “admit there is a problem.”[7] “Unfortunately,” she writes, “few stakeholders seem willing to say it.” There are numerous headlines decrying the fact that supply chains are broken; however, there doesn’t appear to be an acknowledgement that the problem go beyond factory closures and port pile-ups. According to Foroohar, “If you look beyond the rhetoric, [there are several truths] at the core of nearly every big trade story of the moment.” Those truths include, “The World Trade Organization is broken; global trade liberalization for its own sake has reached a limit; and there needs to be a new balance struck between international trade and domestic politics.”


One of the reasons the WTO is broken, Foroohar insists, is because China is deliberately trying to break it. She explains, “China is going in another direction. Beijing’s so-called dual circulation plan is a decisive step away from World Trade Organization rules and multilateral agreements orchestrated by technocrats from the US and Europe.”[8] She explains that this dual circulation plan “prioritizes self-reliance, indigenous innovation and the use of all strategic resources to shape a world where the US no longer calls most of the shots. That means settling more trade deals in renminbi, the better to reduce the financial leverage that the dollar gives the US. It also involves weaponizing supply chains — various legislative loopholes in the US still allow states and companies to source supplies such as personal protective equipment from China.” Unfortunately, she concludes, “The US doesn’t have a new, unifying theory for trade policy in our post-neoliberal era. It needs one, now.”


BCG analysts suggest there are “five main factors that could affect the evolution of trade in the coming decade.”[9] They are: the shape of the post-COVID-19 recovery, changes in geopolitical dynamics, the pace of decoupling of the U.S. and China’s trade relationship, a lack of emergence of trade agreements and accompanying mechanisms for dispute resolution, and various government policies for achieving national well-being.” Analysts from CBRE, a global leader in commercial real estate services and investment, believe a decoupling of the U.S./China trade is not wise. They believe companies should adopt a multi-country strategy, which has often been called a “China Plus One” strategy.[10] They suggest, “Western nations and organizations need to diversify their manufacturing and sourcing portfolios outside of China.” They emphasize, however, “Diversification doesn’t mean removal.” China remains too large of a market to ignore.


Concluding Thoughts


BCG analysts conclude, “Rather than waiting for a return to the status quo, companies should act now to make their manufacturing networks and supply chains more resilient. Companies should take a fresh, holistic view of the markets and trade relationships that are likely to drive growth and secure competitive advantage in the post-COVID-19 world.” At the same time, advises Robert J. Bowman, managing editor of SupplyChainBrain, supply chain professionals should be clear-eyed when they look to the future. “Americans in particular,” he writes, “tend to have a blinkered view of other countries and cultures, but global traders can’t afford that state of ignorance. Visibility and understanding are essential qualities of an efficient supply chain.”[11] He concludes, “We can only hope that over the coming months we’ll see the doors of commerce swing wide once more, and global trade rebound. But don’t count on any of the above-mentioned challenges disappearing anytime soon. For supply-chain managers, there will always be obstacles to surmount, and to do that they’ll need a thorough understanding of what the world’s regions have in common — and how they’re uniquely different.”


[1] Craig Jarrow, “You Can’t Go Back… Only Forward.” Time Management Ninja Blog, 17 September 2012.
[2] Rana Foroohar, “The world needs a 12-step programme for better trade,” Financial Times, 8 May 2022.
[3] Kate Bachelder Odell, “‘The Blue Age’ Review: Dragging Anchor,” The Wall Street Journal, 30 August 2021.
[4] Leslie Griffin, “Opening Up a World of Opportunity Through Trade,” The Wall Street Journal, 16 November 2016.
[5] Ben Aylor, Megan DeFauw, Marc Gilbert, Claudio Knizek, Nikolaus Lang, Iacob Koch-Weser, and Michael McAdoo, “Redrawing the Map of Global Trade,” Boston Consulting Group, 20 July 2020.
[6] Michelle Frennier, “The Lasting Impact of COVID-19 on Global Trade,” SupplyChainBrain, 30 October 2020.
[7] Foroohar, op. cit.
[8] Rana Foroohar, “US trade policy needs a radical redesign,” Financial Times, 6 February 2022.
[9] Robert J. Bowman, “The Driving Forces Behind Global Trade — Current and Future,” SupplyChainBrain, 10 September 2021.
[10] Staff, “CBRE: Which Way is International Trade Flowing?” Supply Chain Digital, 4 October 2020.
[11] Robert J. Bowman, “Reopening the Doors to Global Trade,” SupplyChainBrain, 5 May 2021.

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