After decades of increasing openness in global trade, the past few years have seen a shift towards greater protectionism as a result of trade wars between China and the US, the disruption in supply chains caused by the pandemic, and more recently the war in Ukraine.
These megatrends are undermining the global trade system, according to José Viñals, group chairman at Standard Chartered, speaking at the seventh annual World Trade Symposium, held in London on March 31.
Another megatrend is the explosion in cross-border e-commerce, which has driven global services trade, Mr Viñals identified. However, the World Trade Organization (WTO) does not have the correct rules in place to address that phenomenon.
“We are at a juncture where we have a global trade order that is not fit for purpose for the changes that have taken place – and will continue to take place – in the global economy in the 21st century. We need a resetting for this century,” he said.
In addition to a shift away from multilateralism, there is a meaningful reorganisation of global trade corridors. Standard Chartered, which has a large footprint in emerging markets, has witnessed the growth in south-south trade corridors over recent years.
For example, many firms started to restructure their supply chains as a result of the US-China trade wars. “The so-called ‘China plus’ strategy involves many producers keeping factories in China to supply the domestic market, which is huge. However, given the uncertainties about tariffs imposed on exports from China, many firms also have another set of factories in [countries such as] Vietnam and Cambodia to supply to the rest of the world,” Mr Viñals explained.
China has also developed a lot more of its trade with emerging markets and developing economies, given the geopolitical uncertainties between East and West, as well as the dynamism of the developing world. “Emerging markets have a higher growth potential than developed economies, which means that global trade is naturally pivoting towards emerging markets,” Mr Viñals said.
Advances in digital connectivity are also accelerating emerging markets’ growth potential. Mr Viñals remarked: “Where digital can do wonders is to improve small and medium-sized enterprises’ [SMEs] access to global markets. Connectivity gives them the speed, the scale and the scope as to what is possible today.”
Providing SMEs with financial support, such as trade finance, is critical to their development, in addition to connectivity. “The complement between digital on the one hand and finance on the other is critical to help SMEs play their role in global trade volumes,” he said.
However, Mr Viñals believes that digitisation needs to move more quickly for real gains to be achieved, pointing to the challenges the WTO faces on agreeing the rules for e-commerce. “That is not an easy conversation and progress is at a standstill. Although I’m hopeful that something will come out of it, main issue for digital trade is around data. We need to agree on global rules to govern the flow of data across borders, including privacy and security,” he said. He added that there is a need more consistency at the global level, as well as interoperability, in terms of regulations and standards, particularly around the use of cloud platforms.
He highlighted one area where central banks are making progress: central bank digital currencies. “[CBDCs] have tremendous implications that go far beyond trade. It will have a profound influence on the world, complementing the private digital currencies that are flourishing.”
Some have argued that central banks should not get involved with digital currencies, but Mr Viñals disagrees. “Central banks provide an anchor of monetary and financial stability, which is key for economic growth and trade. So central banks are right to get involved because they will continue to be an anchor for monetary and financial stability in a digital monetary world. But they need to do that in a way which is consistent with innovation. And a lot of the innovations that are happening in the digital asset space are also going to be critical for trade,” he said.
Environmental, social and governance considerations are also top of mind for central banks and the banking industry worldwide. “Sustainability has become so important for governments and the private sector that we need a lot of collaboration to make global trade fair and sustainable,” he said. “The private sector can also make a contribution. For example, Standard Chartered has entered into partnerships to provide as much transparency and resilience in supply chains, also digitalising in the full chain of trade documentation.”
The bank carried out a study of more than 500 C-suite executives from global multinational firms, in which more than 90% of respondents identified their top priorities as sustainable and inclusive trade.
“The Covid-19 pandemic has made us all conscious that these systemic sustainability challenges are much closer and much more tangible than we had anticipated five years ago,” said Mr Viñals. “Businesses know that this is in the interest of their clients and in the interest of business because there is a great opportunity in the sustainability world.”
Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight
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