The world experienced economic disruptions brought about by the COVID-19 pandemic and the war in Ukraine. As a result, food and energy prices skyrocketed, sending inflation soaring and forcing lawmakers into tightening fiscal policy.
This fallout also slowed growth and caused a sharp decline in global trade, with no regions spared. The good news is that international trade has rebounded strongly since last 2022. Here are five must-know updates on international trade for this January 2023.
UNCTAD’s Factors Affecting Trade in 2023
According to the UN Conference on Trade and Development (UNCTAD), the geopolitical frictions, persistent inflation, and lower global demand that caused a drop in trade growth last year will likely affect trade in 2023 as well. Negative factors like low economic growth forecasts, high-priced traded goods, and skyrocketing interest rates will also affect trade this year.
On a positive note, new trade agreements and improved logistics might turn the tables after adjusting to COVID-era challenges. Although there are record levels of global debt, credit activities can help the economy’s overall money supply to grow. After all, it’s one of the most effective barometers of a nation’s economic health.
For example, there’s a waning job market in Ohio these days. If lenders like Creditninja.com in Ohio offer loans to start-up businesses, it’ll not only promote entrepreneurship but also create greater social mobility among the populace, resulting in economic growth.
Other factors like a greener global economy and diversification of suppliers are also seen to do wonders for this year’s global trade. For example, in supply chains, many manufacturers are considering offshoring, reshoring, near-shoring, and friend-shoring at their level to make supply chains more resilient and agile.
International Concerns Raised About EU’s Carbon Border Tax
The European Union (EU)’s Member States and the European Parliament recently agreed to the Carbon Border Adjustment Mechanism (CBAM). It’s the world’s first carbon border tax to prevent carbon leakage. It requires EU companies importing goods from non-EU countries to purchase CBAM certificates. These will cover the emissions generated in producing those imported goods. However, this new levy raises international concerns.
First, many companies from countries that didn’t primarily cause climate change will have to pay carbon charges. For example, with the tariffs on aluminum exports, Mozambique’s GDP will likely drop by about 1.5%.
As a result, the provision to ring-fence revenue from the sale of CBAM certificates has been raised. While this can significantly support climate actions in the least developed countries (LDCs), it hasn’t unfortunately been included in the final agreement.
Second, CBAM is providing double protection for European products and will likely be a subject of a legal challenge to the World Trade Organization (WTO). Under EU emissions trading systems (ETS), free ETS allowances are given to several EU organizations in some sectors, specifically those with hard-to-abate emissions.
While CBAM claimed to be in full compliance with international climate law, running alongside their current ETS rules unquestionably violates the WTO national treatment rule.
EU-Chile Trade Will Boost Clean Energy
The EU has been increasing its shift away from Russian seaborne crude oil after the outbreak of Moscow’s war in Ukraine. Last December 2022, they, alongside the G7 and Australia, implemented a $60-per-barrel price cap on Russian gas. Consequently, President Putin stopped shipping crude oil and oil products to any nation implementing the cap from February to June this year.
Due to this energy transition, supply tightness and rising demand for lithium occurred last year. It’s a mineral typically used in e-vehicles and batteries. As a result, its trading volumes and prices skyrocketed. It’s expected that the same will happen with copper this year. Like lithium, copper is extensively used in many clean energy technologies.
It likely caused the EU to agree with Chile, the world’s biggest copper producer, and the second-largest lithium producer. Chile agreed to give the EU improved access to lithium, copper, and other minerals critical to clean energy technologies and energy transition. In exchange, the EU will end tariffs on all imports from Chile except sugar.
Global Chip Shortages Continue
The COVID-19 pandemic now has continuously aggravated semiconductor chip shortages. Even worse, this current chip shortage is unlikely to be resolved soon due to its complex production process. It caused major global semiconductor producers, like the United States (US), China, South Korea, and Taiwan, to take action. For example:
- The United States implemented Creating Helpful Incentives to Produce Semiconductors (CHIPS) and the Science Act to boost domestic manufacturing of semiconductors. Washington also introduced export controls, giving China a hard time developing advanced semiconductors. As a result, China filed a dispute with the WTO, but it backfired and caused several Chinese companies to be on a trade blacklist.
- Seeing domestic chip supply chains as national security, South Korea gave large tax breaks for semiconductor companies that invest domestically.
- Taiwan also expanded tax breaks to encourage domestic semiconductor research and production.
Korea-Singapore Digital Partnership Agreement
South Korea is one of Singapore’s largest trade partners. It made Singapore sign a digital trade deal with South Korea, making it its first Digital Economy Agreement (DEA) with an Asian country and its fourth deal globally.
Korea-Singapore Digital Partnership Agreement is generally made for better seamless cross-border data flows and trustworthy digital business environments. It specifically covers e-payments, paperless trading, digital identities, and artificial intelligence. In a rapidly growing digital economy, it’ll open up opportunities for these two countries’ businesses and people.
As economic activities are embracing digitalization, governments see DEAs as trade’s new frontier. These comprehensive “digital-only” agreements can tackle digital policy fragmentation, modernize and establish trade rules, and facilitate interoperability between digital economies.
As multiple shocks still weigh on the global economy, many expect world trade to remain subdued in 2023. Nonetheless, with the recent adaptations and efforts of different countries, international trade, if anything, offers some hope.