The State of Global Trade – Part 1
Part I: Global trade management
This is the first of a three-part article on the three primary aspects to global trade in 2022.
The following is an excerpt from the 2022 edition of Global Trade report from global information agency Thomson Reuters:
“For better or worse, we now live in a world where the words “supply-chain disruption” apply to an astonishing number of issues affecting the global marketplace. Shortages of food, parts, and products; catastrophic climate incidents; political turmoil; inflation; stock market declines—all can be linked in some way to ongoing issues with global supply chains.
Meanwhile, of course, the companies that import and export these items around the world are all trying to devise strategies to minimise the impact of disruptions on their customers and businesses, if not the world at large.”
Current challenges to global trade
Over the past few years, global trade practices have taken a central role in global politics with the trade war between the United States and China, sanctions, regulatory tariffs, political instability and movements such as Brexit all having their implications on global trade. Brexit, for example, initiated a much more protectionist trade regime between the UK and the rest of the world with companies within the UK now being forced to implement new systems and processes and comply with new regulations.
Retaliatory tariffs and sanctions too have become a central tool for political tit-for-tat, such as in the case of the US and China continuing to impose tariffs upon each other and the global wave of sanctions on Russia post their invasion of Ukraine. These have rattled the world of global trade, stirring increased supply chain uncertainties and price fluctuations whilst sparking inflation and exacerbating an already-heightening cost-of-living crisis.
Although China still sits pretty at the epicentre of global manufacturing, trade with the country seems to be fraught with an increasing amount of fragility. An excerpt from the Thomson Reuters report about the Asia-Pacific region reads: “covid-related lockdowns in Chinese factories have led to product delays and shortages. Increased scrutiny around forced labour has pushed supply-chain due diligence to the top of the list of concerns companies have about conducting trade in Asia, and with China in particular.”
About 83% of respondents to a question on the survey agreed that “Asia-Pacific supply-chain disruptions due to the pandemic and worldwide economic turmoil are having a major impact on their businesses.” These disruptions have, in fact, been so destabilising that almost four-fifths of the respondents also believed that global multinationals need to consider diversifying their supply chains immediately.
Consequently, this has led to companies expanding local sourcing and near-shoring of their manufacturing to develop more stable supply chains. A popular option in this regard, especially among firms generating over $100 million in annual revenue, has also been to diversify to countries such as Thailand, Indonesia and Vietnam because of their cheap labour. And, TR writes, “for many companies outside the US, taking full advantage of existing and potential new free trade agreements (FTAs) in the Asia-Pacific region is a strategic priority as well.”
More data pushing the envelope on trade and regulations
The common denominator in all these changes, however, is that governments around the world are now digitising and taking greater advantage of their tax and customs platforms to adopt more centralised sophisticated technologies to enable greater transparency and data security. These agencies are, in turn, pushing organisations engaging in the trade to upgrade or adopt newer systems to keep up with compliance obligations. Thomson Reuters writes:
“81% of survey respondents agreed that the solution to rapidly changing customs and tax environments lay in adopting more capable global trade technologies. Further, 74% agreed that trade compliance and customs operations are such critical, strategic functions that they would prefer not to outsource them.”
A majority of those taking the Global Trade survey also agreed that corporations should now be strategically leveraging special customs regimes and Free Trade Agreements (FTAs) to help push down customs duties, trimming costs and attracting newer investments. The best way for organisations to accomplish these goals is the use of global trade technologies to help identify”hidden opportunities in an environment of complex and ever-evolving regulatory oversight.”
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[Continue reading in Part II on widening skill gaps and the adoption of global trade technologies]
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