Global trade faces stagnant decade with higher inflation

SE Asia will be the main winner, with an estimated RM4.4t in new trade tied largely to new commerce with China, Japan, the US and the EU 

INTERNATIONAL trade will grow more slowly than the global economy over most of the next decade as the war in Ukraine reshapes strategic alliances and alters the flow of cross-border commerce, a new report said. 

World trade’s annual expansion rate will average 2.3% through 2031, compared to an increase in global GDP of 2.5% on average each year over the same period, according to forecasts from Boston Consulting Group (BCG). 

Trade largely tracked the growth rate of world GDP during the decade preceding the pandemic. So the report predicts the worst stretch of stagnant globalisation since the World Trade Organisation (WTO) was established more than a quarter century ago. 

“After nearly 30 years of a comparatively secure trade environment, we are in the midst of a new East versus West dynamic, with a US- and EU (European Union)-led community and a China-Russia counterpart, along with the potential emergence of a third grouping of non-aligned nations,” said Nikolaus Lang, a BCG MD and a coauthor of the report. 

Four major supply chains have suffered from the war and from increased tensions between the US and China — energy, agriculture, industrial metals and semiconductors. Those explain about 80% of current inflationary price pressures, according to Lang. 

“The move from global to more regional trade also generates diseconomies of scale, which triggers higher prices,” Lang said in an email. “As the world adjusts, we expect inflationary pressures to reduce, but overall through 2023 and 2024, we will continue to see higher-than-normal inflation through this period of adjustment.” 

Under the shakeout outlined by BCG, the next nine years of trade upheaval will create the following winners and losers: 

• The EU will boost its trade with the US by US$338 billion (RM1.47 trillion), driven largely by American energy exports to Europe, and will also expand its combined trade with Asean countries, Africa, the Middle East and India. 

• Trade between the US and China will drop by US$63 billion. 

• Between the EU and China, trade growth will also decelerate, grow- ing by just US$72 billion, which BCG called “a modest increase compared to previous years”. 

• Russia’s trade with China and India will grow by US$110 billion, “including US$90 billion with China alone”, the consultancy said. 

• South-East Asia will be the main winner, with an estimated US$1 trillion in new trade tied largely to new commerce with China, Japan, the US and the EU. 

• Asean trade with China will grow by US$438 billion, the largest interregional advance. — Bloomberg 

  • This article first appeared in The Malaysian Reserve weekly print edition