ASK fi ve economists what global trade patterns will look like in 20 years and you are likely to get fi ve very different answers, maybe more. What is clear, however, is that global trade fl ows are on the verge of some major change.
Trade, by its nature, is about the movement of goods and services. Examples of trade across borders date back to around 5,000 years ago. Singapore played an important role in the expanding trade relationship between Britain and China in the second half of the 18th century as a port of call. And that contributed to the reputation of Singapore as a global trading hub it is today.
The globalisation of trade is therefore less a modern phenomenon, but more an ancient innovation.
Fast forward to the modern day, we have a complex, but effi cient, system of global trade that, for the most part, cuts across geopolitics. But as political moods shift, so do trade fl ows.
In the West, we have seen major and largely unexpected political shifts that look set to impact the fl ows of global and regional trade in the coming decade or so. The decision made by the UK to break away from the world’s largest trading block, the European Union (EU), came as a surprise to many.
This was quickly followed by the election of Donald Trump and his wish to tear up bilateral trade agreements that were decades in the making. From Athens to Rio, we have seen social unrest and protest largely targeted at globalisation. Collectively, these events have caused shockwaves that look set to shape the future of global trade.
In the aftermath of Brexit, the UK is now seeking to form new trading relationships with the rest of the world. Free trade agreements (FTAs) are the new mantra of any UK politician as they look to economic powerhouses, such as China and the fast-growing economies of Asean, for trade deals.
The challenge here is that Brexit will involve unpicking (and potentially rebuilding) long-standing multilateral FTAs that will impact on trade deals around the globe.
Taking fi nancial services as a prime example, the UK has enjoyed open passporting of services across the EU for the past 30 years. Many Asian markets, such as Singapore, have seen the UK as a gateway to EU markets.
So, with Brexit comes the challenge of developing new trade fl ows while retaining those that are well established. Politically, this is a monumental challenge and for business it creates uncertainty.
Uncertainty is no friend to business or trade. In a recent ACCA survey of professional accountants, it was found that Brexit had greatly reduced optimism in the economic outlook. Much of this is down to the uncertainty surrounding what the UK’s trade arrangements will look like after it has left the EU.
This will take some time to formulate — years not months, but what is clear is that Brexit will bring about a shift in global trade fl ows.
International trade is a complex web of bilateral and multilateral agreements. With Brexit, the UK will be breaking away from the EU trading block, through which it currently trades with non-EU countries, to agree new trade terms with the EU and the rest of the world.
This process will create a chain reaction, whereby both existing and future trade deals will be altered to refl ect the fact that the UK has effectively become a new trading state.
Timing is everything and Brexit has certainly come at a time when trade fl ows between the East and West are shifting. China’s Belt and Road Initiative (BRI) land route will mean goods can be transported from Southeast Asia to Europe by rail in a fraction of the time that it would take to do via ship. This is a game changer that will increase both the volume and diversity of goods being traded via the BRI routes.
Services are a slightly different beast. Many services can be traded and delivered virtually and this will only increase with further digitalisation of the world around us. Goods will physically cross borders, whereas services can travel point-to-point in an instant virtually. This makes trade in services a complex matter for trade negotiations.
As mature economies become more reliant on service industries, there is a real danger that barriers to data and digital knowledge fl ows will cause economic harm.
Can borders be imposed and effectively policed in an increasingly borderless and digitalised world? There will be many different and confl icting views on this. It is highly likely that services delivered digitally will increasingly transcend political borders. Plans that create unnecessary borders and barriers will only serve to fail business, the economy and wider society.
Of course, the issues raised by Brexit refl ect many of the disruptive uncertainties in the 21st century global business caused by regulation and technology. It is more important than ever that we continually develop our skills to ensure we are equipped to lead business and governments in highly complex scenarios such as trade negotiations and working across regulatory borders.
Innovative approaches and the harnessing of emerging technology have huge potential to boost productivity.
Trade talent and technology all fl ow freely in a globalised business environment, and as we stand on the verge of a new trading era, we need to ensure that political and economic strategies embrace this fact.
