The world is becoming more interconnected and interdependent than ever before. Technology has blurred the boundaries between countries and regions, making them more vulnerable to the effects of conflicts and crises that occur elsewhere. What used to be a local or regional problem can now have global implications, as seen in the recent Corona epidemic and the war in Ukraine. These two events have disrupted the global trade movement, which is already facing challenges from inflation, interest rates, trade wars, and supply chain issues.
According to the “High Trade Monitor” report published by The Financial Times, global trade volume declined by 3.2 percent in July 2023 compared to the same month in 2022. This is the largest drop since August 2020, when the Corona epidemic first hit the world. The report also stated that the decline was widespread, as most countries reported lower trade volumes in July.
One of the main reasons for this decline is the crisis in Ukraine, which has escalated into a political confrontation between the East and the West. This has reshaped the economic map of the world, as different powers compete for influence and resources. The crisis has also increased geopolitical uncertainty and risk, which affect trade and investment decisions.
Another reason is the lockdown in China due to COVID-19, which lasted for a long time and hampered its recovery. China is a major player in global trade, both as an exporter and an importer. The lockdown disrupted its production and consumption, as well as its supply chains with other countries. Moreover, China is involved in a trade conflict with the United States, which has imposed sanctions and tariffs on each other. This has reduced their bilateral trade and affected their trading partners as well.
A third reason is the increase in insurance and shipping costs, which have raised the prices of goods. This has reduced the demand for global commodity exports, especially in light of high inflation rates that have eroded the purchasing power of consumers. Inflation has also prompted central banks to raise interest rates, which have made borrowing more expensive and slowed down economic activity.
Finally, a fourth reason is related to the technological changes that are transforming production and trade. Some industries may adopt automation and smart manufacturing, which reduce their dependence on human labor and possibly lower their trade volume. Some sectors may also shift to digital services, which are less visible and measurable than physical goods.
These are some of the factors that have contributed to the decline in global trade volume in July 2023. However, there may be other reasons that are not captured by the report or that may emerge in the future. Therefore, it is important to monitor the trends and developments in global trade and their impact on the world economy.
Global trade rates are affected by the interplay of these and other factors and vary from one country to another and from one sector to another. These factors may be interconnected and influenced by each other, and therefore it may be difficult to identify a single specific factor for the decline in global terms of trade. Some assert that the return of global trade to pre-pandemic levels is linked to the extent of recovery in China.
Given this complex landscape, future indicators of global trade cannot be predicted, as the situation is more complex than it was during the Corona pandemic. This is considering that during the pandemic period, the world was waiting for a vaccine that could eliminate the virus and thus gradually overcome the repercussions associated with the pandemic and recover from it, while now the matter seems different in light of the political conflict, not between two countries but between two camps, and the results cannot be expected.
What increases the complexity of the current crisis is the idea of using some tools that were not previously widely used as weapons in conflicts, such as energy weapons and food weapons, which strike supply chains, killing and weakening the international trade movement. Therefore, continuing to use these tools will weaken the trade volume further and threaten to have significantly disastrous results.
Indeed, these data have imposed a state of uncertainty on the global economic situation, meaning that no one can predict what might happen in the coming days, which in turn was directly reflected in investors’ confidence in making a profit, and the extent of their willingness to engage in commercial and investment activities. What is certain from the above is that geography did not grant any country the protection it required from global events, as was happening previously, and that the development of technology will force us to redefine geographical constants.
Dr. Hatem Sadek: Professor at Helwan University