Why we need to think local

International trade figures published by the World Trade Organization at the end of August in its Goods Trade Barometer show a turnaround in the second quarter of 2023, driven by strong automobile production and sales.

The current barometer index of 99.1 is up from the previous one of 95.6 and follows two quarters of decline, but remains slightly below trend, though close to the 100 baseline. The Barometer is a world trade composite indicator, reflecting actual trends.

Values higher than 100 reflect above-trend international trade volumes, while values below 100 indicate a current or upcoming slowdown. Year-on-year trade was down one percent in the second quarter and down 0.3 percent quarter-on quarter.

Contributing factors included high food and energy prices caused by the ongoing Russian invasion of Ukraine, and high interest rates in advanced economies, designed to fight inflation.

Global exports and imports were down due to sluggish economic growth both in developed countries and in China, with current indicators below the 1.7 percent global international trade growth forecast originally projected for 2023.

Most of the barometer’s components were slightly below trend, including the container shipping index (99.5 percent), the raw materials index (99.2 percent), the export orders index (99.5 percent), the airfreight index (97.5 percent) and the electronics components index (91.5 percent). A surge in the exports of automotive products led that index to climb to 110.8 percent.

Indeed, increased exports of automotive products led to a strong GDP growth in Japan, while Chinese vehicle exports gained momentum in recent months. Ironically, this is happening when, at time of writing this article, the American United Auto Workers union went on strike against the big three Detroit automakers Ford, General Motors and Stellantis.

As to Canada’s international merchandise trade, our imports were down 5.5 percent in July, the strongest decline since January 2022, while our exports were up 0.7 percent, following declines of 2.7 percent in May and 3.5 percent in June.

Our imports from the U.S. decreased 0.6 percent but our exports to the U.S. rose 1.5 percent. Our imports from the rest of the world were down 13.2 percent, with our exports down two percent. The 13-day strike at British Colombia ports that began on July 1st affected our overseas imports and exports that month.

In the U.S., exports of goods increased two percent in July, led by vehicles and parts, and industrial supplies.

Imports were also up two percent, led by consumer and household goods, pharmaceuticals and capital goods. On the Asian side, China’s international trade continued to decline, as its exports are challenged by weaker demand, both domestically and abroad, especially as North America and Europe want to depend less on Chinese imports.

The shifts taking place in world trade, in particular the nearshoring and friend-shoring policies, added to the U.S. decoupling from China, have started to translate into figures. It was recently announced that, based on trade figures of the first half of 2023, Mexico has replaced China as the first trade partner for American companies. The U.S. imported US$236 billion worth of goods from Mexico in the first half of 2023, $210 billion from Canada and $203 billion from China.

In its latest World Trade Report, the World Trade Organization is calling for a renewed focus on re-globalization, as trade fragmentation across the globe threatens growth and development. But with ongoing global crises in geopolitics, public health, the environment and the economy, it seems obvious that globalization exposes countries to greater risks. We should instead work towards economic independence.

As the pandemic taught us, we need to become less dependent on outstretched supply chains and instead develop shorter, regional supply chains through reshoring and nearshoring. We need to move from lean inventories and just-in-time, and instead rebuild inventories and just-in-case stocks.

Another sign of fragmentation was seen at the recent G20 summit, organized by India. The Chinese leader was absent, which is not a good sign for international cooperation.

Another worrying element was that, at the request of China, the G20 closing declaration did not condemn the Russian aggression of Ukraine. As Russia continues to get direct or indirect support from many countries, in particular China, India, Brazil, South Africa, as well as despots in smaller African, Middle Eastern and Asian countries, the war could continue for a long time, and so will trade disruptions.

Without peace, respect for the rule of law and close international cooperation, international trade cannot prosper in an orderly fashion. And neither can environmental issues be tackled efficiently. We may unfortunately continue to go through ongoing trade disruptions, coupled with growing environment-related challenges that may not be addressed properly as long as the current geopolitics continue.