• Douglas Lippoldt, Chief Trade Economist, HSBC Global Research
    • Pedro Anaya, Global Head of Business Management, GTRF, HSBC
    • Vinay Mendonca, Global Head of Product and Propositions, Global Trade and Receivables Finance, HSBC
    • Winfield Wong, Regional Head of Business Development, Global Trade and Receivables Finance, Asia-Pacific, HSBC

    International trade is undergoing a massive transformation. Firstly, trade patterns are shifting eastwards towards APAC, thanks in part to the dynamism of businesses in that region and the effects of growing protectionism and rising anti-globalisation sentiment in some developed economies. Simultaneously, new technologies are reshaping international trade, helping corporates overcome many of the inefficiencies in areas such as supply chain management and trade financing, said Pedro Anaya, Global Head of Business Management, Global Trade and Receivables Finance at HSBC.

    A panel of experts at HSBC's International Day shared their insights on a panel moderated by Anaya about the future direction of travel for global trade.

    Shifting from West to East

    Market concern about protectionism –such as the US decisions in 2018 to unilaterally impose additional 25 per cent tariffs initially on USD50 billion worth of imports from China and subsequently 10 per cent tariffs on a further USD200 billion worth of Chinese goods – is still very real. While the US has threatened to increase the latter levies to 25 per cent, Doug Lippoldt, Chief Trade economist at HSBC Global Research, suggested a deal to avoid this remains uncertain but possible, amid a slew of reports implying that China is likely to offer some concessions to the US to put an end to the dispute. Lippoldt said "Uncertainties also remain about the timing of ratification of the renegotiated NAFTA accord, and the potential disruption to EU-UK trade as a consequence of Brexit".

    The negative trade policy developments in parts of the west are in marked contrast to events unfolding across APAC. Lippoldt cited the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP), formerly known as the TPP, which has been agreed by 11 countries (albeit not the US), as a way of example. Lippoldt said the CPTPP would reduce tariffs and various other trade impediments across signatory countries, which collectively account for around USD10 trillion in global GDP. He noted that the initiative remained open to new members and could be extended to include countries such as Thailand, Colombia and potentially even the post-Brexit UK.

    Economic growth in APAC has remained strong, with acceleration in some countries such as India. In addition, China is cementing its international credentials through its Belt and Road Initiative.The scheme will facilitate greater connectivity across infrastructure, trade and investment between China and 65 countries across South East Asia, the Gulf, Africa and even Europe.2

    Even though a lot of the recent dialogue about global trade has focused on the problems caused by protectionism, Lippoldt pointed out the situation may not be as bad as some people imagine. Lippoldt acknowledged the negative effects of the introduction of US punitive tariffs on some trade flows and the associated retaliation by some US trade partners3, but its impact has been mitigated somewhat by liberalisation along other trade routes. Examples include the CPTPP (mentioned above) and the EU-Japan Economic Partnership Agreement, both of which entered into force in recent months. These are large-scale agreements that benefit a number of trade routes, removing most tariffs and easing many other impediments to trade.4

    Technology takes on global trade

    The panel also touched upon the role of disruptive technology in reshaping global trade. Innovations such as Blockchain or DLT (distributed ledger technology) are having a real impact in expediting trade financing, and removing a number of its manual, paper-based processes in areas such as negotiating letters of credit. Winfield Wong, Regional Head of Business Development, Global Trade and Receivables Finance, Asia – Pacific, HSBC, highlighted Blockchain would have a material role in accelerating global trade. HSBC itself has made impressive progress leveraging Blockchain to speed up trade finance transactions for its clients, most notably issuing a letter of credit via the Corda Blockchain on behalf of Cargill and completing the entire transaction in 24 hours, in comparison to the five to 10 days normally required.5

    Vinay Mendonca, Global Head of Product and Proposition Management, GTRF, HSBC added supply chain management could become far more efficient through the adoption of Blockchain, principally by helping firms optimise their working capital arrangements, in what should facilitate a number of liquidity advantages and cost benefits. The technology – through its single source of truth and immutability – could also support corporates with their initial and ongoing KYC (know-your-customer) and anti-money laundering (AML) checks on end suppliers, along with product traceability.

    The next 10 years for global trade

    Global trade is undergoing significant evolution. With protectionism on the rise in markets such as the US, APAC countries are looking to capitalise on shifting trade patterns and assert themselves on the world stage. In addition, existing practices around trade financing and supply chain management – along with manufacturing and distribution – are being reinvented as a result of advancements in technology. Consequentially, the actors and processes underpinning global trade will look very different over the next five to ten years.

    1McKinsey (July 2016) China's one belt one road: will it reshape global trade?

    2World Bank (March 29, 2018) Belt and Road Initiative

    3Strait Times (June 24, 2018) US tariffs on cars could affect USD400bn in trade: EU

    4European Commission – EU Japan Economic Partnership Agreement

    5HSBC (May 14, 2018) HSBC and ING execute ground-breaking live trade finance transaction on R3's Corda blockchain platform

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