Recent years have seen a series of disruptions to the multilateral trading system, and Covid-19 has served to bring these into sharper focus. At GTR Asia 2020, Eleanor Wragg spoke to Michael Froman, vice-chairman of strategic growth at Mastercard, who also served as the US trade representative from 2013 to 2017, to get his take on the extent to which corporates are likely to change their supply chain strategies, the role governments may play in driving nearshoring, and how such policies are likely to impact on the global drive for financial inclusion.

GTR: Already a trend prior to Covid-19, nearshoring has become more urgent as supply chains have been upended by rolling shocks worldwide and trade has become increasingly entangled with geopolitics. What does this mean for globalisation?

Froman: Companies are looking at their supply chains and looking at their incremental investments through a new lens and taking that into account as they decide where to put their next factory.

In terms of the geopolitics of this and what this might mean more broadly, the tensions between China and the US and between China and a number of other countries potentially pose the challenge of some degree of decoupling. If we pull apart, whether it is from a technology point of view, or from a supply chain point of view, what does that mean for global standards? Can we maintain global standards and interoperability which has been absolutely key to achieving the efficiencies of global trade, particularly for small and medium-sized businesses, or are we going to find ourselves in multiple blocs with different standards which make it more difficult for these SMEs to play a role in global trade? And to me, that is the real question that we need to look at going forward: Whatever happens with the US-China relationship, whatever happens with supply chains, can we maintain those kinds of global standards that have contributed so much to international efficiency.

GTR: In recent years, Asean has emerged as a champion of multilateralism and free trade. Given the current economic and trade challenges around the world, do you think we can expect to see a greater focus on regional co-operation?

Froman: We have seen that the World Trade Organization (WTO) is under a certain amount of pressure right now, whether it is negotiating new agreements, monitoring the compliance of countries with their commitments, or dispute settlements. There is a lot of focus on what needs to be done to reform the WTO. But, in the meantime, coalitions of the willing or coalitions of the ambitious are getting together in regional groupings, in plurilateral groupings, to continue to pursue responsible trade liberalisation and pursuing the strengthening of rules and standards as well.

Asia has been very active in this area. Whether it is the CPTPP or RCEP or relations between Asean and other countries, there has been a lot of work done to continue to reduce tariffs and non-tariff barriers, and at the same time strengthen standards and strengthen the rules-based system.

Asia has often led the way in thinking through how trade facilitation can reduce frictions at a time when there are other tensions in the system. Some of these tensions we cannot control, but the ones we can control tend to be the ones right at our border, such as how we handle our customs and how we handle our border controls, or what happens at our ports.

GTR: Much has been made recently about the need to increase resilience within supply chains, particularly among SMEs. What does this mean in practice? How can SME suppliers strengthen their opportunities in global trade?

Froman: In order for them to become part of global supply chains, SMEs need to move to the digital economy if they are not already there. It’s about digitising things like payments and procure-to-pay capabilities. These are all steps towards becoming resilient. Because otherwise, when there is a downturn and people pullback, it is the small and medium-sized companies that are likely to bear the brunt. We see that in our neighbourhoods with neighbourhood restaurants or stores that are having difficulties, but we also see it in the global trading system with the rise of small and medium-sized businesses who are under particular stress, whether it is in terms of getting access to financing or being able to participate in those global supply chains.

GTR: Although we can dust off the lessons that we learned during the global financial crisis and apply them to the current situation, the scale of the magnitude of the economic, financial and business upheaval that we are seeing is really unlike anything we have ever experienced. Who will write the playbook for the future that we are moving into? Is it governments, corporate, or consumers?

Froman: I would say all of the above. One thing that this crisis points out is that on the one hand there is certainly a role that only governments can play in the global ecosystem and we need governments to step up. And there is a role for philanthropy, too. But the bottom line is that neither governments nor philanthropists have all the tools that they need to address these kinds of challenges, and the private sector very much has a role to play.

What that involves is anything from accelerating digitisation to making sure there is interoperability and inclusion. The private sector must ensure that the efforts we are taking include individuals and small businesses who might otherwise be outside the formal economy and outside of the financial system. And the challenge for the private sector is to do this in a way that isn’t just a hobby. It’s not just for public relations purposes, but it becomes part of their core business strategy because they recognise that they benefit from healthy, thriving economies. There is long-term value for the company in investing in these sorts of efforts.

The other challenge facing private companies is figuring out how to partner to get this done. No company or set of companies can do this on their own. They need to find new modes of partnerships with each other, with governments, with international organisations, and with non-profit organisations to deliver their expertise, their technology and their innovation.

GTR: Is it overly optimistic to think that Covid 19 can usher in a new inclusive future for global trade and the finance that supports it?

Froman: I am an eternal optimist. As a former trade negotiator, you have to be to get through the day. But I think there is a basis for it. Companies are beginning to step up and say, okay, I have got to deliver financial results, but I have also got to invest for the long term, which means investing in healthy, inclusive societies. And that I think is a good reason to be optimistic. CEOs and boards of directors are putting the role of the company in creating long-term value higher on the agenda.

GTR: In your view, will the multilateral rules-based global trading system survive this latest crisis?

Froman: One of the challenges of maintaining the consensus of political support which is necessary in order for globalisation to continue has been the failure in some countries, including the United States, to recognise the disparate impact that technology and globalisation have on different parts of the community, and making sure that we have all the tools in place to help people succeed in a rapidly changing economy.

On the domestic side, a lot of the concerns that have been raised about the global rules-based trading system are legitimate. One of the greatest challenges we have is figuring out how to incorporate and include a country that is as big and important as China into the global trading system when it follows a very different set of rules to other countries. We have got to take that seriously.

We also need to look at what we need to do at the regional level, among groups of countries willing to take various issues like the digital economy further to get things done and to continue to make progress. If we can go further in regional agreements, then we can begin to raise the standards of global trade more broadly and put the building blocks in place.