The global trade war has impacted the economies of various countries across the world. The imposition of tariffs and trade restrictions has led to an increase in the cost of goods and services, resulting in inflation. However, globalisation has not stalled yet, despite the fiery geopolitical posturing of recent years. According to a recent analysis by Stephen Jen and Joana Freire at Eurizon SLJ Capital, total cross-border trade as a share of global output has barely changed and the current 22% share of non-oil trade-to-GDP is well within 20-year ranges.
US-China Trade Relationship Expected to Worsen
Direct bilateral trade between the United States and China has clearly fractured during six years of tit-for-tat tariffs, post-pandemic insecurities, and all the political and investment rivalries that hardened since Russia invaded Ukraine. Joe Biden’s administration has reinforced China’s trade aversion with a ‘de-risking’ strategy of its own as geopolitics worsened around Taiwan and Ukraine.
BCG’s annual world trade study expects the rift between the world’s two biggest economies to deepen, and it sees the value of bilateral trade between them dropping by almost $200 billion over the coming decade. However, fears that the broken relationship would seed a wider ‘de-globalisation’ of trade have not yet been borne out.
China’s Strategy to Beat U.S. Tariffs
China has succeeded in overcoming U.S. tariffs by heavy direct investment in third countries such as Mexico and Vietnam that the United States is still happy to import from, exporting intermediate goods to these third countries for final assembly to avoid U.S. trade barriers.
The BCG analysis shows how familiar routes that defined the world trade map are being redrawn, with blocs playing a greater role, and “third” countries acting as go-betweens for those at loggerheads or global companies trying to navigate between the two.
ASEAN Nations Poised to Benefit
World trade growth over the next decade will indeed be slower than global GDP growth amid a “fundamental shift away from the trend of trade-led globalism that has been prevalent since the end of the Cold War.” However, the world of “re-shoring” or ‘friend-shoring” of supply chains containing a number of features over the next 10 years will likely see South East Asian nations become the biggest winners, with cumulative ASEAN trade forecast to grow $1.2 trillion over the next decade.
Overall, while the global trade war has had a significant impact, globalisation has not stalled yet, and trade volumes remain less disturbed than first feared. The future of the global trade war is uncertain, but countries must come together and find a solution to this problem to prevent further economic damage.
