The Prospects for Global Trade

As the UK prepares to notify its European partners of its intention to leave the EU, via the triggering of Article 50 of the EU Treaty, the prospects for the global trading system are looking decidedly fragile.

This is not good news for the home improvement industry, our sector has benefited enormously from the development of globally integrated supply chains. But it seems that this era is coming to an end. How long that lasts depends on whether or not the next two to three years bring real benefits to the type of “left behind” voters that Brexit and Donald Trump appealed to.

If those communities experience a growth in opportunity due to lower levels of foreign competition (both in goods and immigrant labour), it will vindicate much of the populist rhetoric. But if the more likely scenario of higher prices for consumer goods and most importantly, food, really starts to bite, things may unravel very quickly for the anti-trade, anti-openness agenda.

So if Brexit put the brakes on the continuous process of trade deregulation, the US leaving NAFTA will kill it stone dead. Should leaving NAFTA go more smoothly than the farcical ban on muslims, Trump will be emboldened to follow that up with taxes on car imports from Mexico and a more broadly applied border tax. The world could then find itself in a trade war.

With all this ahead of us, it was no surprise to see the emphasis EU leaders and the Canadian Prime Minister recently placed on the signing of CETA. It was a clear signal to the US and UK. But CETA was signed with a lot of internal difficulty in Europe. and we may well come to the see it as the last of the deep and wide-reaching free-trade agreements the EU has pursued.

And you can’t have any discussion about trade with out mentioning China’s role. When I recently spoke at the China International Hardware Show in Shanghai, all of the debate from Chinese industrialists centred on moving away from an export-driven model, to thinking more about the domestic consumer. If you look at China’s share of exports in relation to overall GDP, this has been receding to levels of over 10 years ago. So a change is happening.

Retailers are having to think about where all of this leaves them. The global supply chain is in the firing line. Will there less cross-border investment? Will we see production coming back to Europe and the US?

Bilateral Free Trade Agreements seem to be the most favoured instruments now, but they are not without challenges. FTAs bring great complexity for exporters, suddenly a whole new set of rules of origin and bureaucracy needs to be built into a company’s trade strategy. In the end the consumer will lose out through higher prices and less choice. Not good conditions for a flourishing retail offer.

Author: Alisdair Gray, International Analyst for the Global DIY Summit



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