Building on the insights from our first article in this series, let’s dive further into the current state of global trade and its future prospects, Trade Landscape in 2023 – Part 1 can be read here.
As China increases both its economic might and dictatorial tendencies, tensions increase with major powers such as the US and the EU. Still the world’s factory, as shown by the impact of Shanghai lockdown on global supply chains, China is both their rival and their largest trade partner. In 2021, EU-China bilateral trade stood at about 2 billion euros per day. Total volume of 2020 US-China trade was 615.2 billion USD. China is, however, losing market share in some areas of manufacturing to other countries in Asia, notably Vietnam, Malaysia, Bangladesh, India, and Taiwan. It will be worth watching to see how this trend develops as the world is able to fully put the pandemic behind.
The US-China high-tech war is changing trade flows between the two countries. To combat China’s misappropriation of US technology, the US has imposed stringent controls on the export of key technology to China. Increasingly, licenses are required to export US advanced semiconductors, supercomputers, and semiconductor manufacturing equipment. Although equally concerned and despite US pressure, the EU has not as yet imposed similar controls on their technology exports. Both countries have moved to sanction China in response to reports of human rights abuses in its Xinjiang Uyghur Autonomous Region against the Ugyghur Muslims. In June 2022, a US law that bans entry into the U.S. of all goods produced wholly or partially in the Xinjiang region of China took effect. Impacted products include electronics, clothing and accessories, footwear, fruits, vegetables, and polysilicon used in the production of solar panels. Corporations may need to assume greater control over all aspects of their supply chains if they seek to keep operating in Xinjiang and other countries need to monitor the reach and scope of this law beyond U.S. shores.
Worth watching for in the 2023 trade landscape is how trade patterns may change as China emerges from covid lockdown. Despite the rivalries, countries cannot lose sight that without China’s cooperation key goals on climate change are unattainable.
Regional Trade Agreements
The world’s two largest trading blocs – the one-year old Regional Comprehensive Economic Partnership (RCEP) and the two-year old African Continental Free Trade Area (AfCFTA) – are operational. How are they doing and how will they fare in 2023?
The RCEP entered into force on January 1, 2022. The largest partner is not the United States, which is not a member, but China. Other members are the ten (10) Association of Southeast Asian Nation (ASEAN) countries, Japan, South Korea, Australia, and New Zealand. Fairly mature economies, RCEP partners generate almost one-third of global output and contain one-third of the world’s population. Members have committed to reduce to zero tariffs on over 90% of goods trade among them. RCEP is China’s first multilateral trade agreement, and it is expected to reap the most economic benefit – as the only signatory without a prior trade deal with Japan or South Korea, the other two major signatories. A Peterson Institute study has estimated that RCEP could add up to $500 billion in world trade by 2030, with sizable benefits for China, Japan, and South Korea.
African countries generate only three (3%) of world trade and so the AfCFTA is a more immature bloc. The AfCFTA launch during the global pandemic and a lack of agreement on the rules of origin for some product lines had delayed the start of actual trading under the agreement. Through the Guided Trade Initiative, a pilot project which gives companies dealing in certain products in selected countries support through the AfCFTA process, in 2022 Kenya and Rwanda shipped to Ghana goods certified as having met AfCFTA rules of origin. Cameroon, Egypt, Mauritius, Tanzania, and Egypt are also participating in this initiative, aimed at proving that African intra-regional trade can happen. Centuries of trade driven by the mercantilist policies of colonial masters have routed trade through Europe. For example, most African-grown coffee beans are shipped overseas for processing and packaging, then sold back to African countries at markups of as much as 1000%. Using the AfCFTA rules of origin, Rwandan company, Igire Coffee, has started to ship “Made in Rwanda” roasted arabica coffee beans to Ghana.
Intra-African trade leaves more of the value of the final product in Africa and in the hands of the African producers. Growth of these important trade routes faces challenges however, including ramping up the process of certifying goods to meet AfCFTA rules of origin and improving the underlying logistics. Igire Coffee has air-freighted small shipments to Ghana. Larger shipments require container trade, which requires shipping, railway, or highway routes. In Africa, these will need to be developed in order to attract a level of trade to make these routes financially viable. This type of infrastructural development is typically done by governments or public-private partnerships as an investment in the country’s growth. In Africa, as in other parts of the developing world, that role is being played by China.
For both agreements, at the end of the day success rests on how effective it proves to be for traders to use. Both present an opportunity for manufacturers to establish operations in the respective region and take advantage of the broader markets created.
The hard slog of Brexit implementation continues. Removal of hard-core Brexiter, Boris Johnson, as Prime Minister promises to make the process less acrimonious, however. Despite having left the EU, the EU remains the UK’s biggest trade partner. The physical movement of goods between them occur via Gibraltar and Northern Ireland – the UK’s border with the EU. In 2023, the UK and the EU will continue negotiations to address the continued fall-out of breaking up.
Stay with us as we monitor these and other stories important to the trade landscape in 2023.
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I am a seasoned international trade and customs attorney, and policy adviser for various companies and governments with a demonstrated history of successfully developing and implementing sustainable and dynamic trade programs. I am experienced in creating partnerships with various business-support organizations to drive compliance and growth in the international market.