In spite of recent challenges to growth, Asian trade has remained resilient. The region has helped to bolster recent global trade figures – with ASEAN exports, for example, growing 12% from 2013 to 2016 to reach US$875 billion.
Yet, where world trade once grew at twice the rate of GDP, the World Trade Organization’s (WTO) forecast for world trade growth in 2016 was a rate of just 1.7% – slower than global GDP for the first time in 15 years.
The WTO 2013 Trade Facilitation Agreement finally came into full force in February this year. TFA is forecast to slash trade costs by an average of 14.3%
If the huge opportunities in Asia are going to be realized, the wider trade finance industry must work to combat slow global growth by addressing the challenges holding back trade. Of these, three stand out as critical: increased Western protectionism; China’s economic slowdown; and, crucially, the widening gap of trade-finance availability.
The global landscape
Driven by concerns about economic and political risk and a marked increase in Western protectionism, the global trade landscape is experiencing a period of instability. Between mid-October 2015 and mid-May 2016, the G20 economies introduced 21 protectionist trade-restrictive measures a month – the fastest pace since 2008’s financial crisis and the subsequent protectionist fallout.
Moreover, the recent US rejection of the Trans-Pacific Partnership (TPP) trade agreement has had serious implications for the five Asian member countries and their future economies. Vietnam, for example, was predicted to experience an 11% rise in GDP by 2025 as a result of the deal.
This is just one example of rising anti-globalization feeling coming from the new administration in the United States, fueling fears of a new “anti-export” trend that would threaten the successful establishment of subsequent trade agreements.
The strength of the region
Principally, the region with the most promise and potential to lead the way is Asia. Though China’s economic slowdown and reduced commodity consumption are of some concern, with exports falling 7.7% year-on-year in 2016, the world’s second largest economy is making concerted efforts to combine the strength of the region.
Chinese Foreign Direct Investment (FDI) in the ASEAN’s six largest economies (Indonesia, Thailand, the Philippines, Malaysia, Singapore, and Vietnam) doubled last year to US$16 billion. ASEAN-China trade ambitions are set at US$1 trillion by 2020.
Moreover, in a move that has inspired some renewed optimism for global trade, the WTO 2013 Trade Facilitation Agreement (TFA) finally came into full force in February this year. Aimed at reducing tariff and non-tariff barriers to trade, the TFA is forecast to slash members’ trade costs by an average of 14.3% and potentially boost global trade by up to US$1 trillion per year.
Furthermore, while the WTO is focused on reducing institutional barriers to trade, China is looking to reduce physical, political and cultural barriers in the region with the One Belt, One Road project, funded in part by the Asian Infrastructure Investment Bank (AIIB).
“One Belt” refers the land-based Silk Road Economic Belt, stretching from Hong Kong to Scandinavia; “One Road” refers to the addition of shipping lanes to the Maritime Silk Road. One Belt, One Road comprises more than physical thoroughfares. It is a project aiming for economic, political, social and cultural co-operation between China, Asia and the rest of the world.
Additionally, while China’s commodity consumption is waning, ASEAN markets’ commodity consumption has actually increased. In part, this is due to a ballooning consumer base – the total ASEAN population is forecast to reach 700 million by 2030, and combined GDP is predicted to reach US$3.57 trillion by 2020.
In turn, this is inspiring increased levels of intra-regional trade and FDI.
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