Should trade continue to be global after the pandemic?

Ten months in, the pandemic still poses a threat to lives and livelihoods in many parts of the world. Among its many impacts are the cracks in our international supply chains, which are crucial to keeping globalized economies ticking along.

In some instances, concerns about the risk of transmission have reignited calls for more protectionist, inward-looking economies. However, if one believes, as we do, that economic prosperity lies in facilitating the movement of goods and services from where they are produced to where they are most needed, then we would also urge that this can only be achieved through collective action, not isolation.

Continued globalization, with a focus on equitable distribution, and sustainable free trade are crucially important enablers on the road to collective recovery.

The challenges

What have we learnt from the pandemic? With the usually reliable cadence of global supply chains being interrupted, reshoring – bringing manufacturing back from overseas – has surfaced as a popular solution. This has been exacerbated by pandemic-led closing of borders, at times cutting off essential supplies for many countries.

Shorter supply chains should reduce the risk of being cut off from key suppliers. But is it really efficient for companies to shift entire supply chains to make them closer to home, ignoring the advantages afforded by clusters of specializations in advanced manufacturing, or the lower costs of manufacturing afforded by emerging and frontier economies?

China’s Greater Bay Area, for instance, is a manufacturing hub for international companies. When we surveyed manufacturers there earlier this year, almost 70% were considering moving operations to other locations, but digging deeper we found that almost half of these respondents had not finalized their decisions yet.

In our view, China will still be pivotal in the global trade ecosystem and key to global supply chains, despite shifts. The advantages it offers will not suddenly become available closer to home and the costs of reshoring are high and often prohibitive.

Where do we find growth?

When, eventually, we control the COVID-19 pandemic, and companies can focus on recovering and rebuilding, they will need to look at new areas of growth. One solution will be to identify and seize opportunities for global trade.

Standard Chartered’s Trade Opportunity Report points to a combined opportunity of almost $40 billion for exporters to grow bilateral trade between India and 10 key markets, across multiple sectors. These markets span ASEAN, North East Asia, Europe and the Americas. Only with the mechanisms of global trade can these businesses exchange their goods and services with India, to significant mutual advantage.

Both financial institutions and policy-makers need to step up to ensure businesses have access to capital, the necessary infrastructure and the right regulatory environment to tap these opportunities and play their part as drivers of the global economic recovery.

Facilitating global trade

For global trade to flourish in the future, we must make it more sustainable and resilient to external shocks. One of the biggest issues exposed by the virus is the lack of transparency in global supply chains. Problems at a single point can break down the entire interconnected process, without the manufacturer being able to see exactly where they occurred.

Technology is pivotal to solving this issue: digital banking solutions can give businesses the transparency they need in order to minimize supply chain delays and friction, and access finance more easily. For example, banks that have signed up to Contour, a blockchain-based platform, can provide companies with greater access to trade finance through simplified, paperless trade. These types of platforms help companies strengthen the resilience of their supply chains through improved transparency, increased cost efficiency and reduced settlement risks.

On the government and multilateral policy front, we need to acknowledge the benefits of free trade and realise that disturbing cost efficiencies in production generally harms the end consumer. Policies need to be facilitative, not prohibitive, enabling companies to export freely, and the movement of talent and freight to be unhindered.

Singapore, for one, has built its economic success partly due to its global connectivity and global trade flows. Faced with a new reality, the country continues to move speedily towards a digital trade ecosystem. It is promoting the use of digital technology by the many financial institutions operating on its shores; it is driving the adoption of e-commerce and championing innovative trade finance platforms, such as the Networked Trade Platform, and digitally connecting with key trading partners.

As we emerge from the COVID-19 pandemic, we cannot return to the past. The challenge is to shape a new reality where global trade is allowed to drive a sustainable recovery.