But we must proceed with caution:
- Higher interest rates may continue to limit consumer spending on goods and impact borrowing costs for businesses, while uncertainty remains around the extent to which Chinese demand, which is key to supporting intra-Asia trade, accelerates.
- An escalation in geopolitical conflicts in the Middle East risks disrupting Red Sea trade further and exacerbating shipping delays caused by drought restrictions in the Panama Canal.
- Trade uncertainty could spike amid a swathe of elections this year: for example, former President Trump has proposed 10% tariffs on all US imports as he seeks office again.
- Changes to industrial policy in Western economies could lead to more trade protectionist actions, and EU-China tensions risk heightening on the back of the bloc’s investigation into imports of subsidised Chinese electric vehicles.
On the plus side, however, the UK and India are looking to clinch a free trade deal ahead of elections in both economies this year, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) may take effect for the UK in the second half of the year. The UK is the first economy outside the Pacific Basin to join CPTPP, and so this would represent an expansion in the pact’s reach.
However, we also don’t know what we don’t know. Time and time again we’ve seen how “grey swan” events (that is, events that are possible and knowable but considered unlikely) have upended supply chains. While it is difficult to predict exactly what the next big trade risk will be, businesses are navigating a highly uncertain trade environment. And the need to build resilient supply chains has never been more apparent.