Globalisation as was known more than two decades back is now believed to have taken a tilt with geopolitics shaping things in a way quite different from what it was before. Economists consider this a transition of global order, especially when it comes to global trade and economic activities. The Economist Group in a survey conducted by its researchers has termed this a process of transformation. The study attributes this transforming process to the convergence of three pivotal forces: heightened geopolitical risk, urgent realities of climate change, and significant advancements in technologies. As this new era unfolds, the study says, supply chains and trade networks remain in transition, presenting businesses with complex challenges as well as new opportunities.
Geopolitical shocks no doubt continue to have a widespread impact on global trade, with the risk of armed conflict and trade wars remaining high. The US and China are finding themselves in an intense economic competition, spurred by a wave of protectionist policies and trade regulations, which, in an attempt to redirect supply chains, are re-configuring global trade networks. The war in Ukraine has illustrated a significant bearing of geopolitics on global trade. It led to heightened trade restrictions and a reconfiguration of Europe's energy market, and that of global commodities. It propagated supply-chain reconfigurations and further aggravated the macroeconomic landscape. The more recent war between Israel and Hamas has reaffirmed the significance of geopolitics, creating great instability in a region that is central to global supply networks. It becomes clear that the era of 'new globalisation' demands a strategic recalibration, whereby supply chains must now be as resilient to geopolitical tensions as they are to be cost-efficient.
Amidst geopolitical currents, climate change--the second factor driving the age of new globalisation-- introduces a series of imperatives to sustainable global trade that continue to shape the broader evolution of global trade and supply chains.
According to the survey, technological innovation-the third factor defining the age of new globalisation--stands out as a driver of change within the global trading system. The development of ever-more-capable artificial intelligence (AI), the adoption of greater automation and robotics, and advancements in areas like blockchain and 3D printing are providing the means to reconfigure supply chains. These advancements are believed to offer a prospect for adaptability, promising to mitigate some of the challenges posed by geopolitical tensions and macroeconomic pressures, and address concerns related to climate change.
That technology is going to help meet a good deal of the challenges may sound rather simplistic. Because until and unless trade avenues are made free from restrictions along with the necessary facilitations regarding supply chain management, a leap in global trade and commerce is difficult to anticipate.
However, in this context it may be pertinent to refer to the projection of the World Trade Organisation (WTO). The WTO projects an optimistic outlook for 2024 and beyond, anticipating a rebound in merchandise trade volume with a growth rate of 3.3 per cent. This expected increase in trade volumes is set to outpace global GDP growth of 2.5 per cent projected earlier, signalling a positive shift in global trade dynamics. Echoing the WTO's outlook, the Economist Intelligence Unit (EIU) underscores the volatility of the current trade environment. Following a period of reduced growth in 2023-where export volume of goods and services increased by a modest 0.7 per cent-- the EIU projects a rebound in 2024, with a growth rate of 2.3 per cent in the export volume of goods and services.
The findings of the Economist Group's survey, however, suggest a more optimistic note in global trade and commerce. Their global research indicates that in spite of the challenges, businesses are more proactive in devising new modes and practices that they believe would rid the global trading environment of the stalemate of 2023. Businesses will not just be weathering the storm but actively seeking new opportunities for expansion. The survey indicates that despite the formidable challenges posed by the current geopolitical and economic climate, there are multiple growth drivers and sources of optimism underpinning global trade. A shift towards new markets is also discernible, the survey says.
Much of the positive outlook of the survey rests with technological advances. Technology's transformative power, the study says, stands out as a source of optimism underpinning businesses' push for growth. Dmitry Grozoubinski, founder of ExplainTrade, a trade policy consultancy, highlights this shift, stating, "in trade, there's a lot that is done manually, but it doesn't all have to be. I am very excited about the potential of digitalising part of the supply-chain bureaucracy and what that could mean for smaller businesses trading across borders. For example, AI and chatbots could help businesses navigate bureaucratic hurdles like finding the right tariff classification for each of their products." The enthusiasm of businesses stems from recognition of technology as not just a means to achieving greater supply-chain efficiency, but also as a transformative source of new opportunities in supply-chain restructuring.
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