Trade Regimes and the New Re-Globalization
N. Anthony Alexiou
There are a lot of prognosticators out there declaring the death of globalization – a result of the COVID-19 pandemic, difficult economic times, a conflict in Europe and the rise of populism. While yes, this can be a valid argument, what we are really witnessing is not the end of a political and economic order, but a shifting of it – a re-globalization where major corporate and government actors are adjusting expectations and changing countries they do business with along with the entrenchment of regional power bases. Trade and shipping haven’t stopped or slowed. The trade routes, it seems, are just being redrawn, bringing with it a shift in regional power.
Data over the past 3 years (since the start of the COVID-19 pandemic) have shows a steady shift in how trade is being conducted. It turns out things aren’t dire, just different. We have found that:
While US-China trade has slowed, neither country is trying to decouple their economies as was once thought. Rather, Washington and Beijing seem to be hedging with each other while deepening trade ties with other markets. We see that the US has started importing more goods from Europe than from China and that China is exporting more of its goods to non-US markets.
Brexit has been bad for Britain – it has increased costs for British companies and reduced market access making Britain an economic island as well as a physical one – this is not really news
Germany was slow to cut off imports from Russia after the Ukrainian conflict began but did so quickly afterwards, according to Eurostat.
The shift we are seeing is, to a degree, a greater localization of the supply chain and the creation of regional trade hubs that have been growing since the pandemic. China has been concentrating more of its trade in the Pacific just as the US and Europe are also deepening their own trade ties. We’ll see this increase over the next couple of years, particularly in Asia-Pacific as well as a greater US focus in the Americas. This is not to say that the worlds biggest economies won’t be trading, they’ll just be trading less and doing so via regional trade hubs.
Costs and time are major factors in this but so is ensuring easy and broad access to key goods. During the pandemic we saw goods like medicines, some foodstuffs and other major goods were hard to get due to lockdowns and labor shortages. Regionalizing supply chains creates the opportunity for goods to arrive faster, arguably cheaper and increase the number of exporters for a given good, thus increasing accessibility.
The biggest loser is re-globalization? Russia. The biggest winner? China.
Russian trade in Europe is finished and will be for years to come. Central Asia which used to be beholden to Moscow is now looking towards Beijing. China itself, seeing that Russia isn’t quite what it used to be, is making significant inroads in places that were traditionally Moscow’s purview. In a region with two large countries, the reality is that only one can run the show. What Russia is losing, China is taking and while Beijing and Moscow will continue a trade relationship, it’s very apparent that China will be in the driver’s seat.
What does all this mean? That globalization is not waning away like many thought, it just took the pandemic and a European conflict to kick off a new iteration. For trade, this means that importers, exporters, and shippers need to rethink how they are going to operate and what ports are going to be the most profitable. Commodity traders need to keep an eye to the shift in demand, watch trends in regional trade hub formation to see what goods are going to be the most profitable where.
Overall, re-globalization sets the world somewhat back on the path that existed pre-pandemic but with a twist. The notion of the ‘one large hegemon’ is over. The idea here is that globalization could never have been a monolith – a self-sustaining whole but rather something that is inter-related with local and regional needs. Regional hubs will create a world led by two nearly equal powers, surrounded by trade satellites – one we expect to be a US-led side that includes NAFTA, Latin America, and Europe. The other, a Chinese-led side that will include Asia-Pacific, Central Asia, and parts of Africa. Of course, places like India will also play a large role in this regime but they, as other countries like Brazil will be able to shift between the two sides as they need to.
We’re not fully there yet today but this transformation has begun, spurred on by a pandemic that showed cracks in what were supposed to be fool-proof regimes and a conflict that turned a large country’s attention towards one small part of their region while neglecting all the others – to another country’s benefit.
N. Anthony Alexiou is the Founder and Principal of The Minotaur Group