Asia, led by China, set to play a bigger role in the evolution of global trade
As the world grapples with increased uncertainly following the unexpected turn of events last year, 2017 may be the dawn of a new era
Globalisation is under pressure, and with it, various forms of international engagement, from multilateralism and foreign investment to global security and more intrinsically, trade.
Based on an increasingly populist view that job losses and adverse economic impact have resulted from cross-border commerce, redistribution of manufacturing capabilities and competencies and offshoring, globalisation and trade has taken the brunt of bad press and negative reaction from anti-trade activists.
Geopolitically, trade has long been a channel for the exercise of influence and power. In the current context of populist engagement, trade is one of the targets for feelings of dissatisfaction and disenfranchisement.
This is despite the reality that trade has been creating value and enabling engagement around the world for centuries. As the world grapples with increased uncertainly following the unexpected turn of events last year, 2017 may be the dawn of a new era for trade and Asia.
The post-crisis context, with various policy and commercially based efforts to advance economic recovery, has resulted in a disruption and re-mapping of global trade routes, some in response to post-crisis protectionism and others following a shift in political relationships and market focus.
Among them, south-south trade has been robust and growing despite an overall slowing in the pace of growth of cross-border commerce.
Production and manufacturing capabilities have expanded beyond traditional markets in Asia like China, to the next set of producing markets like Vietnam and Bangladesh and to sector-specific supply chain hubs like Indonesia in the auto sector.
Markets across Asia particularly China and India, are evolving from a consumer perspective as well, with favourable demographics and higher levels of disposable income.
Historical focus on the United States and Europe as major consumer markets has begun to be counterbalanced by new realities across numerous developing and emerging economies, further stimulating intra-Asia and south-south trade, leading to the reshaping of the configuration, composition and hubs of major global supply chains.
This growth of south-south trade and the increasing consumerism across markets in Asia is expected to reinvigorate cross border commerce and reposition trade as a driver of the global economy and ultimately GDP growth.
While World Trade Organisation data is still showing limited growth, we can suggest at minimum that we have reached a sort of post-crisis “steady state” and are poised to shift into trade-enabled growth in the years ahead.
The evolution in the ways in which trade is conducted will also be transformational, and will contribute to make trade a high-impact creator of value and an increasingly effective channel for economic inclusiveness and international development.
In some industries, let’s take footware production as an example, fully automated manufacturing facilities complemented by drone-based delivery, or in other industries the ability to place an order and have a product delivered onsite through remote 3-D printing will completely transform the logistics, costs and delivery timings associated with trade activity in some sectors shifting from the trade in goods to the trade in intellectual property.
This has the potential to allow more developing market-based SMEs to engage in export trade, hence facilitating access to finished products for consumers in lower-income or even remotely located communities around the planet.
Trade in data and intellectual property will become increasingly important to the overall equation of cross-border commerce with Big Data and issues related to interoperability and the “Internet of Things” linking together to collect and enable access to unprecedented levels of data and analytics.
Linkages between trade, finance and technology will continue to evolve and be the subject of further policy attention as well as financial and resource investment as Hong Kong and Singapore continue their battle to be Asia’s top fintech hub.
With the digitisation of trade, increasing commercial activity through online global platforms and the development of a range of new financing options, we will begin to see more tangible work in combining supply chain finance with fast-paced development in fintech-based development and delivery of financing options.
While the immediate future of the Trans Pacific Partnership seems terminal and its counterbalancing objective delayed at a minimum, China’s evolution as a regional and global power continues apace. China is now the champion of free trade and this illustrated in the commercial and trade context by the ambitious “One Belt, One Road” strategy, by the growth of the AIIB and the BRICS Bank, and China stepping up on the world stage.
China now accounts for around 12 per cent of global trade, similar to Britain in the 19th century, and the latest figures suggest that perhaps 700 million people in the country have been pulled above the poverty line, in no small part through trade.
Just as the rooster crows at the start of a new day, the Year of the Rooster may well mark the dawn of a new era for trade and trade finance and a watershed year in the evolution of international trade and commerce. There is therefore ample reason for optimism for the future of trade-based economic growth, inclusion and development in Asia despite the anti-trade headwinds.
Michael Vrontamitis is global head of trade products, transaction banking, at Standard Chartered