A powerful economic logic of collective growth drove the most recent era of globalisation, but this logic is now under attack in the new normal. Protectionism is rising on the back of unprecedented pandemic era disruptions. To ensure that global trade can and will continue to benefit a world in transition, the trading system must adapt to deliver better outcomes for people and planet.

In the decades before the pandemic, rapid globalisation profoundly transformed international trade for the better. Between 1995 and 2010, the pace of world trade growth expanded twice as fast as that of world GDP growth¹. Moreover, the nature of trade was transformed by the expansion of global value chains, a web of interlinkages that developed as production unbundled across borders.

However, the flipside of greater trade openness has also been greater exposure to global shocks - which was especially highlighted during the COVID-19 pandemic. Physical lockdowns and supply chain disruptions around the world have precipitated calls for more protectionism, demanding a return to domestic manufacturing and the renationalisation of critical industries.

The idea that companies and their products should be treated equally regardless of where they come from is therefore under great peril. That being said, Maybank believes the benefits of trade and diversifying demand are still attainable for businesses in ASEAN. But this would require building the right strategies and making preparations for a future in which globalisation becomes more unpredictable.

Globalisation is not dead, but in transition

Despite the backdrop of ongoing pandemic uncertainties, global trade has shown immense resilience, having rebounded to pre-pandemic levels within the first quarter of 2021, growing by 17 per cent YoY². What's more, a rebalancing of the global trade system is anticipated over the next decade, with trade dynamics set to shift and high-growth economies poised to gain.

Many ASEAN markets in particular are forecasted to grow above the global average³. Singapore, being a regional trade hub, will continue playing a critical role in driving greater connectivity and boosting intra-regional and global trade. Furthermore, growing consumption hubs in emerging markets like India and Indonesia will create further growth across new and existing trade corridors.

Nonetheless, the experience of advanced economies like the United States or Europe suggests that without the correct policies and frameworks being in place, there is always the potential for people to turn against globalisation. For instance, global trade can have implications for income inequality, which in turn can spur protectionism if not tackled effectively through distributional policies.

Looking ahead, even after the disruptions created by the pandemic are resolved, the world will still have to contend with the consequences of a changing climate and changing industrial structures. Although worldwide trade has been a major source of income, jobs, and opportunities, it also generates about 8 billion tons of climate-heating carbon emissions every year.

According to a recent IPSOS-World Economic Forum (WEF) survey, 75% of the global public supports expanding trade, but only half said that they thought globalisation was good for their country, a drop of 10% since the pandemic's onset in 20194. This ambiguity suggests belief in the potential of trade for improving lives, but also a deep unease over its current directions.

Therefore, while globalisation has been creating positive impact and results - it also needs to be reset to become more equitable and sustainable, and for its advantages to accrue more evenly. Global trade is instrumental to making this happen, connecting suppliers and manufacturers with the consumer markets of the future.

A win-win between people and planet

The previous model of globalisation was not sustainable and escalated systemic risks, including financial crises, climate change, rising inequality, and pandemics. Deglobalisation may be an attractive political slogan, but it could only make matters worse. The world, especially the countries devastated by COVID-19, need more cross-border flows of vaccines, technologies, investments, and trade that creates jobs.

Business as usual is therefore no longer an option. The world needs a trade recovery that is different, that is both more sustainable and inclusive. Encouragingly, many companies have started incorporating partnerships with banks to promote access to finance for robust and inclusive supply chains as a key priority for their internationalisation and cross-border expansion strategies.

Alongside this focus on financial inclusion, the growing reach of technology and e-commerce is unlocking new opportunities for making global trade more accessible, breaking down barriers to entry for more SMEs. Wider adoption of e-commerce platforms is offering more flexibility, connection to buyers and suppliers as well as easier access to finance to support inclusive economic growth.

The increased adoption of digital trade platforms will also make trade faster, more transparent, and secure. Blockchain, artificial intelligence (AI), and the Internet of Things (IoT) will be game changers in the future. Technologies that reduce costs and enhance transparency, trust and efficiency across supply chains will continue to gain traction and help grow global trade.

Meanwhile, more companies are also increasingly focused on implementing fair and sustainable trade practices. Commitments to combat climate change, a rising wave of conscious consumerism and the development of global governance standards for sustainability will drive the development of more ESG-suppliant global supply chains.

As sustainability and inclusivity continues to shape the business model of companies, Maybank is committed to help businesses in ASEAN set a path for the sustainable, inclusive trade of tomorrow. Our range of innovative solutions, including our sustainable trade finance proposition can support clients in building more future-fit supply chains by integrating sustainability across their ecosystems.

To learn more about how Maybank supports companies in driving a more sustainable and inclusive model for global trade, please reach out and connect with our team. 

 

1Cigna, S., Gunnella, V. and Quaglietti, L. (forthcoming), "Global Value Chains: Measurement, Trends and Drivers", Occasional Paper Series, ECB, Frankfurt am Main.
2 Global trade's recovery from COVID-19 crisis hits record high | UNCTAD
 3 Five windows of opportunity for post-pandemic Asia, McKinsey
 4Reform trade to build a sustainable, inclusive recovery | World Economic Forum (weforum.org)

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