The future of global trade is one of the hottest topics around at the moment as the whole concept of globalisation finds itself on the back foot with nationalist politicians in the West questioning its benefits. The main battleground ahead will be ‘bringing jobs back home’ versus the addiction of western economies to cheap consumer goods from the Far East. As matters stand at present, the expectation is that the future of global trade will take a hit over the next few years as barriers to trade, both tariff and non-tariff, are raised in Europe and the USA, which together account for nearly half of global GDP.
For the shipping industry, as for everyone else, the future of global trade is exceptionally uncertain, with changes in technology as well as in politics having the potential to change trading relationships between different parts of the world. Below we outline some issues worth monitoring that have the potential to affect the growth of international trade in the years ahead.
But first, NAFTA – the prospect of the USA withdrawing from the North American Free Trade Agreement is generally seen as the most immediate threat to global trade, but as the USA, Canada and Mexico are on the same land mass and goods move almost entirely by truck, train and pipeline, this is not a big issue for shipping.
Consumers versus workers – with politicians always acutely aware of their popularity, the rise in prices of imports as protectionist policies start to bite may cause some rapid changes of heart. It will be worth monitoring monthly inflation data, particularly when compared to those for income growth, to get any heads-up on pressures building up on our elected representatives.
Jobs growth – or rather the lack of it, will acerbate discontent with rising prices. Even when manufacturing capabilities are brought back to advanced economies they tend to be far more efficient and automated than when they left. They also tend to require a higher level of skills from the men and women working in them. The renaissance of well-paid, relatively unskilled manual labour that today’s politicians are promising may well be on a much smaller scale than advertised. This has the potential to further undermine the popularity of protectionist trade policies.
Changes in the Far East – from the shipping perspective it is the relationship between the Far East and Europe / USA that is the big driver, and the one that in the long term dominates all others. China’s drive to develop a New Silk Road linking the East and West ends of the Eurasian continent has potentially enormous consequences for global shipping should the transport of goods both ways shift from sea to rail. Given the sheer size of the trade flows involved it is hard to see rail replacing shipping entirely, especially for low cost / high volume goods, but over time it could certainly take an appreciable slice of market share and so restrict growth, or even cut outright demand. Meanwhile, China is starting the transition from investment-led to consumption-led growth. The vast quantities of raw materials that it has been sucking in from mostly developing nations will fall as a result to be replaced by mostly domestic production. This will hit shippers involved in the movement of commodities and raw materials by sea.
Global demand! But more than any other factor it is overall global economic growth that drives world trade demand. In 2016 it grew at 3.1%, lower than in previous years, due in part to weak investment plus other factors (see this one minute video from the IMF). It is this, along with changes in Chinese consumption and its Eurasian ambitions that we all need to watch carefully and try and make sense of. Oh, and let’s try and avoid starting any wars, particularly around the South China Sea. That really would be bad news for the future of global trade, and the shipping industry!