Global trade entering “era of fragmentation”
Global trade is moving into a new era of fragmentation, which will eventually reverse the world order we’ve known for hundreds of years.
According to Nicholas Kwan, director of research at the Hong Kong Trade Development Council (HKTDC), the world is halfway towards a “new normal”, which will be defined by exclusive trade blocs, potentially deglobalising a world which has spent centuries becoming more integrated.
Speaking at the GTR Asia Supply Chain Finance conference in Hong Kong, Kwan pointed to the fact that since 2008, we’ve seen a fall-away in cross-border capital flows. Global trade, which outstripped GDP growth for much of the 20th century, has fallen behind it, despite the fact that GDP growth remains anaemic.
The speaker referred to the series of free trade agreements under negotiation, most notably the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP), the Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Area of Asia Pacific (FTAAP) – all of which he claimed could have the potential to replace the World Trade Organisation (WTO).
“The world is growing further apart, we’re entering a new era of fragmentation in which most of the trade coalitions or blocs being created are clearly exclusive: those who are not invited are not welcome,” he said.
Kwan suggested that within the next 30 years, there will be no single dominant currency in the world
The WTO, for its part, has failed to reach the stated aim of the Doha Round, which set out to create a global FTA, leaving member states frustrated at the lack of progress. Combined with rising geopolitical suspicions and cynicism towards fellow member states, blocs have attempted to strike out on their own, thus creating an environment in which splintered agreements are the new normal.
Kwan suggested that within the next 30 years, there will be no single dominant currency in the world. A hot topic at the conference was the growth of the Chinese renminbi, which has now entered the world’s top five payment currencies, and which is predicted to supersede the likes of the euro, yen and pound within a matter of years.
This new global financial architecture will, again, lead to a more fragmented trading society. The US dollar’s hegemony over global trade has assisted the country to become the dominant geopolitics, offering it the power to penalise those corporations and banks that conduct dollar trade with sanctioned countries, companies or individuals.
Kwan’s advice to those financiers in the audience was to refocus their aim towards the developing world, particularly those economies along the frontiers of the old Silk Road route, which is set to be revitalised by billions of dollars of Chinese investment, through its One Road, One Belt initiative.
The strategy will affect 65 countries and 4.4 billion people, potentially stretching from the farms of Queensland to the far reaches of the Iberian Peninsula, which mark the end of European soil. The bulk of the investment is expected to be through the East to Central Asian corridor, along China’s immediate sphere of influence. It has been described as “the most significant and far-reaching initiative that China has ever put forward”.
This, once again, would point towards a redrawing of the global trade picture, harking back to a pre-globalised era in which China and India enjoyed the richest commercial success, mainly due to expansive trade with their regional neighbours.take me back