Building Walls – The rise of protectionism and forwarder risk
The global rise in protectionist sentiment shows no sign of dimming, throwing up question marks for forwarders the world over as they attempt to formulate risk strategies covering the short, medium and long-term.
In the US, the Trump government has already ripped up the Trans-Pacific Partnership agreed by the Obama administration. It has also threatened to put up more trade barriers, not least by threatening to re-negotiate the North American Free Trade Agreement with Canada and Mexico and erecting a US-Mexico wall.
The mooted Transatlantic Trade and Investment Partnership (TTIP) between the EU and US looks to be dead in the water. More worryingly for trade growth, the Trump administration continues to make noises about starting a trade war with China, a move which would put the world’s two leading economies at loggerheads.
In Europe, the Brexit vote by the UK last year has so far – setting aside the sharp depreciation of sterling – not unleashed the chaos some had predicted. But uncertainty remains and most analysts do not expect the full implications to become clearer until Article 50 is officially triggered and negotiations about the terms of the UK’s withdrawal from the EU begin.
Certainly, the UK’s departure from the EU will create all sorts of challenges and opportunities for forwarders. In the short and medium-term shippers will need forwarding expertise to handle changing regulations and trade flows. Longer-term, much will depend on whether the UK is able to negotiate access to the Single Market and on what terms. Any drop-off in trade with the UK’s largest trading partner and/or reduced GDP growth would negatively affect forwarders.
UK-EU negotiations could be further complicated by Presidential and general elections in France and the Netherlands, respectively, which will be held over the next two months. With anti-EU, protectionist champions riding high in the polls, populist victories could destabilise the EU and the Euro, further complicating the trading horizons even as the world is coming to terms with Brexit and Trumponomics.
In Asia and much of the developing world, the anticipated pullback of the US from international trade and global institutions is expected to leave a vacuum, a vacuum that China has given every indication it is ready to fill.
As well as pushing forward a huge new trade agreement covering much of Asia – the Regional Comprehensive Economic Partnership (RCEP) – there has been suggestions that China could even take on much of the US role in a revised TTP deal. More significantly, China is pushing ahead with its ‘One Belt, One Road’ – the so-called OBOR – initiative.
With so many trade deals and acronyms to keep track of, it’s easy to consider OBOR as just another idealistic trade deal. It is not: more than 50 countries have signed up to OBOR, 100+ have declared an interest in participating and some $51 billion has been pledged for its development. On land, the success of OBOR is already evident in the opening up of major new rail links from China to Europe and the Middle East as the ancient Silk Road is rejuvenated. At sea, the Maritime Silk Road consists of a string of hub ports – planned or already in operation – linking Asia to Europe, the Middle East and Africa. On top of that, 28 existing airports have already been expanded and 15 new airports built.
OBOR is potentially a project for the ages and will create huge opportunities for those who can take advantage of the new trade routes it is opening up. It also creates challenges for those wary of Chinese mercantilism and influence across Eurasia and beyond.
So how to plan with so much change in the offing? On both Trump’s policies and Brexit, it’s impossible to know at this stage – there is simply not enough information available to fully analyse their respective impacts. There is, though, immense uncertainty over the US’s future role in international relations, European economic growth and the stability of NAFTA. If the US withdraws from the global stage or erects protectionist barriers, this could give drive and dynamism to the rest of the world’s efforts to boost trade. Equally, it could limit global economic growth projections.
Russia’s role in the world is another risk – where next for Putin’s foreign policy? There is also the possibility of conflict of one kind or another between the US and China. Trade policy and China’s maritime aggression in the South China Sea are likely flash points.
So what can we definitely expect more of in the future? Uncertainty. Plan for it. Game-play various policy outcomes and how they will affect your business and then develop strategies – contingency and operational investments and plans – that enable you to counter (or benefit from) them.
Companies able to stay nimble and react to sharp changes in policy and trading conditions are likely to prosper. In short, plan for the worst; hope for the best!
Another Brick In The Wall – Pink Floyd revisited. Three decades after the end of the Cold War the world order is being redrawn again.
The famous Pink Floyd classic ‘Another Brick in the Wall’ appeared on the band’s 1979 rock opera, The Wall. It became a protest song for many groups, not least South Africans agitating against apartheid in the 1980s.
But the song’s most famous reproduction came of hope. The Wall – Live in Berlin was a concert performance in July 1990 by former Pink Floyd musician Roger Waters and a host of performers which celebrated the end of the Cold War.
It was held on vacant terrain between Potsdamer Platz and the Brandenburg Gate, part of the former Berlin Wall’s ‘no man’s land’. This column is something of a tour of your correspondent’s youth as I was in the estimated 450,000+ crowd.
The fall of the Berlin Wall signalled the end of the Cold War, the death of communism as a political and economic ideology and, many hoped, the start of a new era of global cooperation built on democracy, free trade and liberal values.
It hasn’t quite worked out like that that. The end of a bi-polar world did not lead to something simpler. Instead, the world has become more complex. After 20 years of unprecedented economic growth which has seen billions lifted out of poverty as a result of globalisation and free trade, populism and protectionism in the West are now gaining traction.
In the current political climate of alienation and dissatisfaction with the status quo and political elites, support for new ‘walls’ has never been more vocal.
As Western leaders such as President Trump threaten to withdraw from the institutions and policies that have delivered so many benefits in the post-Cold War decades, Waters would no doubt see the irony of Chinese communist leader Xi Jinping positioning himself as the principal advocate of liberal trade policies.