Uncertainties in global trade

As the world is preparing willy-nilly to embrace Donald Trump's trade regime, which will take effect from January 20, 2025, there is uneasiness about what will happen immediately after he takes the oath on that day. He will officially become the 47th President of the United States (US) and move into the White House on that day. He has already declared that he will impose higher tariffs on China and Mexico immediately after taking charge, and the rest of the trade partners will also not be spared. Thus, global trade will soon be shaken by Trump's tariff.

One relevant question is to what extent global trade will be affected by tariff escalation by the Trump administration. Will the global trade shrink? A number of analyses and projections are already there based on proposed and possible hikes of tariffs by the new President of the US. All these agreed that higher tariffs will ultimately increase the costs of various products in the US market and reduce exports of goods to the US by the different trading partners. The net result may be a slowdown in global trade to some extent.

As per UN Trade and Development (UNCTAD), global trade projection in 2024 is likely to hit US$33 trillion, which was $32 trillion last year. "This 3.3 per cent annual growth has been driven largely by a 7 per cent rise in service trade, contributing $500 billion to the overall expansion. Trade in goods has grown at a slower 2 per cent this year, remaining below its 2022 peak," added the UNCTAD global trade update released in the first week of December.

The World Trade Organization (WTO) statistics also supported the UNCTAD estimate. In the second week of this month, WTO released its latest data showing that world merchandise trade volume rose by 1.1 per cent quarter-on-quarter and 3.3 per cent year-on-year during the third quarter (July-September) of 2024. It also said that the growth marked the fourth consecutive quarter of moderate trade expansion.

UNCTAD's Global Trade Update (December 2024) also said that uncertainty looms over 2025 amid risks of trade tensions and ongoing geopolitical challenges. "The 2025 trade outlook is clouded by potential US policy shifts, including broader tariffs that could disrupt global value chains and impact key trading partners," it said. This uncertainty is a significant factor that could shape the future of global trade.

"Such measures risk triggering retaliation and ripple effects, affecting industries and economies along entire supply chains," added the UNCTAD report. These 'ripple effects' refer to the indirect consequences of trade policy changes. For example, if the US imposes higher tariffs on Chinese goods, China may respond with its own tariffs, leading to a decrease in US exports to China. This, in turn, could affect other countries that export goods to China, creating a ripple effect throughout the global trade system. It also pointed out that even the mere threat of tariffs has created unpredictability that has also weakened trade, investment and economic growth.

The UNCTAD report further mentioned that countries most exposed to changes in US trade policy are likely those with large trade surpluses with the country and higher tariff barriers. These include: China (about $280 billion trade surplus), India ($45 billion), the European Union ($205 billion) and Viet Nam ($105 billion). Other countries with trade surpluses, such as Canada ($70 billion), Japan ($70 billion), Mexico ($150 billion) and South Korea ($50 billion), may also face some risks. However, these countries have imposed relatively lower tariffs on US imports or established bilateral trade agreements with the US. Bangladesh has also been enjoying a trade surplus for a long. In 2023, the country's bilateral trade with the US stood at $8.29 billion. The potential risks to these countries are significant and should be a cause for concern. 

In the latest Goods Trade Barometer, the World Trade Organization (WTO) cautioned that the prospects for trade in 2025 are 'uncertain as they may be affected by possible trade policy shifts'. Released in the second week of this month, the report said: "Global trade will continue to expand at a moderate pace through Q4 (of 2024). However, the outlook is clouded by rising economic uncertainty, including possible shifts in trade policy." The potential impact of the shift in the US trade policy in the coming days is a matter of urgency that needs to be addressed.

Despite several geopolitical conflicts and turmoil in 2024, the movement of global trade seems reasonably modest. The Russian-Ukraine war and persistent conflicts in the Middle East region have, no doubt, made the whole world unstable.

So far, there is no sign of end to the Russia-Ukraine war. Israel's aggressive invasion in Gaza to uproot Hamas at the cost of more than 45,000 Palestinians' lives and destructions of almost all the physical infrastructure has already turned Gaza strip into a barren land. The Zionist state has expanded its invasion into Lebanon also to destroy Hizbullah. Taking the opportunity of the fall of Basher Al Assad regime in Syria, Israel has occupied some strategic parts of the country. It also lunched series of air strike to destroy military capabilities of Syria which has entered into an uncertain territory. Iran-Israel conflict has also intensified. All these cast shadow on global trade in the outgoing year which will be reflected in the final statistics after a couple of months.

Nevertheless, the global trade system has shown some resilience in the face of these challenges, continuing to function and facilitate international commerce.

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