The Banking Executive Magazine - July Issue 2021

ISSUE 151 JULY 2021 the BANKING EXECUTIVE 1 Editorial THE NEW AGE OF GLOBAL COMMERCE Trade growth has generally fallen short of expectations since the global financial crisis of 2008. Today, the global trading system has been reshaped and many factors contributes to this new era. The United States and China are engaged in a trade war where extensive measures have been taken from both sides. NAFTA has been renegotiated, but the new agreement still needs to be ratified. Europe and other parts of the world are waiting to see whether the United States will impose tariffs on their exports as well. The change in the global trading system has impacted the global business confidence. Data from 47 countries-representing more than 80 per cent of the global economy-show that exports and business investment slowed sharply late last year. The international trade enjoyed its years of glorious times when its value chain was international; when a final product made out of many components and each of the components was manufactured in a different part of the world and then assembled in another, and traded internationally several times. Global trade marked its best after China joined the World Trade Organization in 2001. With a massive supply of low-cost labour, China became key to many companies' value chains, and trade intensity grew. Never the less, since economies are continuously evolving, in China, for example, globalization has led to a steady increase in wages. And this reduces the incentive for firms in advanced economies to move production there. At the same time, advances in technology have allowed firms to automate manufacturing more. These trends have changed many factors of global value chains. As a result the, global value chains become more simplified and a reversal of some of the fragmentation of manufactured products we saw 20 or 30 years ago. As a result, components are crossing fewer borders in the assembly process. Trade intensity has eased, and the result is a slower trade growth around the world. A recent report by McKinsey Global Institute highlights that in 23 different industries studied across 43 countries over 22 years, many goods-producing value chains are becoming less trade-intensive as they locate closer to their customers. And as emerging markets like China develop and consume more of what they produce, companies are building more domestic value chains. In other words, not only trade wars are reshaping international trade, rather the evolving nature of globalization is contributing to its slower growth. Dr. Joseph Torbey, Chairman - World Union of Arab Bankers