Trade: 6 things to know about international trade this month

A slowdown in global trade growth is on the horizon. Higher energy and food prices are likely to combine with rising interest rates to curb import demand next year, the World Trade Organization (WTO) forecasts. It is also warning of a possible contraction in trade if the war in Ukraine worsens.

The WTO has cut its trade growth forecast for 2023 to 1% – a sharp drop from a previous prediction of 3.4%.

"The picture for 2023 has darkened considerably," WTO Director-General Ngozi Okonjo-Iweala told a news conference. "If the war in Ukraine worsens, rather than gets better, that's going to have a huge impact."

The world needs a more diversified and less concentrated base for the production of goods and services, she says. This should boost growth, increase resilience and promote long-term price stability by reducing the impact of extreme weather events and local disruptions.

Supply chain disruptions are easing, partly thanks to weakening US demand for goods, according to data from German research body the Kiel Institute for the World Economy.

Ships are now facing shorter waiting times at harbours, and there's been a "sharp decline in freight rates for goods shipments from China to North America and Europe", The Financial Times reports.

Bloomberg also says that talk of "normal" is returning to supply chain circles. It cites a report from Copenhagen-based Sea-Intelligence that says half of shipping congestion has been resolved and “a full reversal to normality should come in March 2023”.

The latest Logistics Managers’ Index notes that there are "truckloads of excess capacity", "hints of moderation across all cost/price metrics" and signs of a "return to business as usual over the next year".

But Bloomberg notes there is still cause for caution. "Fragile supply chains are heading into another holiday season vulnerable to shocks ranging from freakish weather and dockworker strikes to China’s COVID lockdowns and Russia’s war in Ukraine."

The US has imposed controls on exports of some semiconductor chips to China, as it attempts to slow Beijing's progress on technology, supercomputers and military-related applications.

The measures are intended to force American and foreign companies that use US technology to cut off support for some of China's leading factories and chip designers. They could amount to the biggest shift in US policy towards shipping technology to China since the 1990s.

"China isn't going to give up on chipmaking... but this will really slow them (down),” Jim Lewis, a technology and cybersecurity expert at US think tank the Center for Strategic and International Studies, told Reuters.

China's commerce ministry said it firmly opposes the move as it hurts trade and economic exchange between companies in the two countries and threatens the stability of global supply chains. “The US should… give fair treatment to companies from all over the world, including Chinese companies," it said in a statement.

Israel’s exports to the UAE rose more than fivefold to $384 million last year. Trade in the other direction rose at a similar rate, to $632 million.

This follows the signing of the Abraham Accords in 2020, which normalized Israel’s diplomatic relations with the UAE and Bahrain.

Israel signed a free trade deal in May with the UAE – its first with an Arab country – and it began negotiating a free trade agreement with Bahrain in September, Reuters reported.

Officials estimate the Israel-UAE deal will increase trade between the two to $10 billion in five years.

“The rapid development and adoption of digital technologies is transforming the global economy and cross-border trade.” That was one of WTO Deputy Director-General Anabel González’s five key takeaways from September’s WTO Public Forum.

Exports of digitally delivered services rose by 14% on the year in both 2020 and 2021. These include any service that can be offered via information and communications technology (ICT) networks, from ICT services themselves, to sales and marketing, financial services, and education and training.

Such digital trade can “stimulate growth, create jobs and foster innovation, especially in countries that are far from major global production hubs”, González says. Around 90 WTO members are in talks on a deal on e-commerce rules that is intended to facilitate remote transactions, strengthen trust in digital markets and prevent digital trade barriers.

The WTO has this month released a new report with the World Customs Organization on how “disruptive technologies” could transform customs and border management. These technologies – including blockchain, artificial intelligence and the Internet of Things – “can play an instrumental role in implementing the WTO Trade Facilitation Agreement, for example, through improved transparency and inter-agency cooperation, and the use of data mining for more effective risk management,” says WTO Director-General Ngozi Okonjo-Iweala.

As also noted by WTO DDG González after the WTO Public Forum, the WTO and trade are increasingly recognized as tools for tackling climate change. “Open and predictable trade can help spur the production of high-quality and affordable green technologies, facilitate access to those technologies, and mobilize investment at the scale and speed needed to decarbonize the global economy over the next few decades.” A recent report by the Forum confirms the constructive role that trade can play in the dissemination of climate-friendly goods and services, including to developing countries.

But there are many more linkages between trade and climate change: carbon border measures may become more common following the implementation of the EU’s Carbon Border Adjustment Measure (CBAM) from next year, regulations are being developed on the disclosure of corporate emissions including from their supply chains, and climate change itself will increasingly affect trade infrastructure. In order to address these and other concerns at the climate-trade nexus effectively, there is a need for bringing the trade and climate communities closer together.

In addition, there is an important role for foreign direct investment (FDI) to close the "climate investment gap". Whereas total global climate investment currently stands at $2 trillion per year, we need four times that amount according to McKinsey. Although ESG investments have been growing rapidly over the past few years, only 5% of those investments reach developing countries. To this end, the Forum is developing work on implementing a number of measures for facilitating international climate investment, including a Climate FDI Facilitation Guidebook and pilot projects in rapidly growing economies.

Digital economy agreements (DEAs) are the new trade frontier. Various governments have signed DEAs so that they are aligned with others on digital policy, helping to enable trusted data flows and ensure cross-border collaboration on issues such as digital identities, cybersecurity and consumer protection.

Supply chains could benefit from more inclusive procurement practices. Programmes to support diverse suppliers are well-established in the US, but Europe has been slower to adopt such initiatives.

Import dependence and exchange rates have helped drive a 23.9% rise in staple food prices in sub-Saharan Africa in 2020-22. Policy-makers could use reforms to make agricultural inputs such as seeds and fertilizers cheaper, say two IMF economists.

COVID-19 may have sparked the “steepest decline in international trade on record”, according to a DHL report, but it’s also bounced back faster than after any other disruption. These three charts show the state of global trade in 2022.