Recap: 5 Global Trading Trends Before Q3 2023 - Kalkine Media

Several world crises have disrupted the global economy in 2023. These include the Ukraine-Russia war that’s now causing the world’s largest displacement crisis and the global COVID-19 pandemic that created various market problems, contributing to today’s inflation.

These two, alongside other world issues like global warming, have caused food and energy costs to rise, causing inflation to keep soaring and forcing government bodies into tightening fiscal policies.

This fallout had resulted in a sharp decline and slow growth in international trade, with no country spared. The good news is that global trade rebounded fairly well last 2022. Here’s a recap of these trends.

UNCTAD’s Factors Affecting Trade

The UN Conference on Trade and Development (UNCTAD) reported that geopolitical frictions and persistent inflation will continue to affect trade in 2023. However, improved logistics and new trade agreements may turn the tables this year.

They also added that credit activities, including traditional credit services and alternative financing like online loans today, can help grow the economy’s overall money supply. Although the global debt remains high, they’re among the most effective barometers of economic health.

The diversification of suppliers is also seen to do wonders for this year’s global trade, according to UNCTAD. Supply chain leaders are now adapting manufacturing strategies like offshoring, reshoring, near-shoring, and friend-shoring to maximize profitability.

EU Decarbonization Incentive

The UNCTAD has also included a greener global economy as among the factors that can positively affect trade this year. One example of this is the Carbon Border Adjustment Mechanism (CBAM), also known as the European Union’s (EU) decarbonization incentive.

The CBAM is the first carbon border tax in the world that aims to prevent carbon leakage. Its rules governing its implementation have already been adopted by the European Commission last August 17, 2023. Its transitional phase will start on October 1 until the end of 2025.

Under this new levy, EU companies importing goods from non-EU countries must purchase CBAM certificates. They’ll cover the carbon emissions generated in those imported products’ manufacturing process.

However, the CBAM raises several international concerns. First, companies from countries that don’t cause climate change will still have to pay carbon fees. Take Mozambique, for example. The tariffs on their aluminum exports, one of their main exports, will be affected, so their GDP will likely drop by about 1.5%. That led to the provision to ring-fence CBAM certificates’ revenue, which can greatly support the least developed countries (LDCs)

The CBAM isn’t only potentially discriminatory border tax but also in apparent contradiction of the World Trade Organization (WTO)’s multilateral trade norms. It obfuscated WTO’s non-discrimination principles, stating that all countries are equally “most-favored-nation” (MFN) and a country shouldn’t discriminate against trading partners.

It also seemingly provides double protection for European goods. Many EU companies, especially those with hard-to-abate emissions, were given emissions trading systems (ETS) allowances. Following CBAM while agreeing to ETS agreements made the EU liable to challenges at the WTO.

More significantly, available evidence and extant empirical literature contradict CBAM’s fundamental premise of “carbon leakage.” They show no conclusive evidence of an alarmingly high level of carbon leakage that calls for CBAM’s “fair” rationale.

EU-Chile Trade

Another clean energy-related agreement took place between the EU and Chile. As the world’s top copper and lithium producer, Chile agreed to improve the EU’s access to lithium, copper, and other minerals. In exchange, the EU will lift all tariffs on all their imports except sugar.

These minerals are extensively used to create clean energy technologies. Their prices and trading volumes have recently skyrocketed due to the increasing demand for e-vehicles and eco-friendly batteries as a result of the high crude oil costs.

Global Chip Shortages

Many major global semiconductor producers continue to suffer from chip shortages. These include the US, China, South Korea, and Taiwan. Consequently, these countries have to implement changes, such as export controls and tax breaks.

One of the widely known export controls is the one Washington introduced against China. It consequently put the latter at a difficult time developing advanced semiconductors, prompting it to file a dispute with the WTO. Unfortunately, it backfired, causing several Chinese companies to be blacklisted.

Korea-Singapore Digital Partnership Agreement

South Korea made Singapore, one of its largest trade partners, sign a digital trade called the Korea-Singapore Digital Partnership Agreement (KSDPA). It's the country’s first Digital Economy Agreement (DEA) with another Asian nation and its fourth agreement globally.

As a DEA, KSDPA is seen as a trade’s new frontier that embraces today’s digital age. It aims to create more seamless cross-border data flows and trustworthy digital business environments, opening up new opportunities for the two countries’ businesses and citizens.

It doesn’t only cover e-payments, digital identities, paperless trading, and artificial intelligence (AI); it also tackles digital policy fragmentation, modernizes and establishes trade rules, and facilitates interoperability between digital economies.

Final Thoughts

With continuing geopolitical tensions, insistent inflation, and poor global demand, global trade, unfortunately, shows a general slowdown. On a positive note, the recent adaptations of digital and greener solutions may change WTO’s projection for the last quarter of 2023.