How U.S. Trade Policies are Speeding the Development of a Multi-Polar Global Economy
Several years in to the multi-front trade conflict led by the current U.S. administration, the world economy teeters on the edge of a possible recession. The International Monetary Fund (IMF) estimates that up to $700 billion in global trade could be wiped off the books by the end of next year due to the trade war. Much of the direct loss, of course, is tied to reduced trade between the U.S. and China, but other trading regions, such as the rest of Asia and Europe, are impacted by this global slowdown. How is this shaping future trade flows?
Of course, there are some immediate winners in this tussle between the two economic giants. Countries such as Mexico and Vietnam have seen sharp increase in trade as businesses scramble to find new production sites that would allow them to duck tariffs. Hidden behind these headlines, however, is perhaps a more important story; the rapid development of a multi-polar global economy.
Observers wringing their hands over the U.S.-China trade dispute may have missed what else is going on in the world. Europe has been negotiating trade agreements at a rapid clip, finalizing deals with Canada, Japan, Singapore, Vietnam, several African regions and South America (MERCOSUR) over the last three years. Africa is launching the Africa Continental Free Trade Area (AfCFTA), a 54-nation trade block that is hoped will dramatically increase inter-African trade. After a snub from the U.S., the Trans-Pacific Partnership (TPP) was retitled the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and is now an active free trade area among 11 partner nations. Asian countries are considering a 16-nation trade pact called the Regional Comprehensive Economic Partnership (RCEP). In brief, world leaders are not sitting on their hands waiting for the U.S.-China dispute to get resolved. They are seizing opportunities to trade elsewhere.
World demographics make this multi-polar trading system inevitable. Despite the United States’ tremendous economic power, it represents less than five percent of the world population. Although it is a wealthy sliver of the overall market, that means that 95% of the world’s consumers still reside elsewhere. Over the next few decades, rapid population growth in Asia and Africa will continue to change these market numbers, with 79% of the world’s consumers residing in Africa or Asia by 2050. The global middle class will continue to grow outside of ‘traditional markets’ and by 2030, over half of the world population will be considered middle class. Some estimates suggesting that over 90% of future middle class growth will come in Asia and Africa.
This dramatic surge in wealth and consumer spending power outside of Europe, the U.S. and Japan demands more infrastructure to support logistics. China’s initiatives to help itself carve out a primary role in developing these new markets through the Belt and Road program are well known, but Europe has also jumped into the seize a piece of the action, especially in Africa, and programs to upgrade infrastructure at the state level are fueling building from South America to the Philippines.
“It’s my expectation global trade will become even more fragmented over the next decades,” notes European logistics expert Louis Coenders, owner of the Dutch advising firm De Transportheker, which has been consulting on transportation, warehousing, and global distribution since 2010 and has stressed to clients the growing importance of diversity in logistics as the world becomes multipolar. “You cannot rely on one single source. From a risk management perspective, it’s never smart to put all your eggs into one basket. That also applies to international trade.” Coenders further noted that the growing middle class in places like Eastern Europe, Asia and Africa will encourage infrastructure changes to bring products into these markets as consumer spending rises. For the moment China has an edge into many of these areas, as illustrated by the first train shipments from Alibaba arriving into Liege, Belgium just last week as twice-a-week rail shipments are now sent directly from China to the EU courtesy of the improved rail system.
When the U.S. resolves its trade disputes with China (and potentially the EU, Turkey, Russia and other targets of the current administration), it will find that the unintended consequence of this long-term conflict is that the world has by necessity sped up economic exchanges, and adjusted trading systems and flows to accommodate this new multi-polar world. While some of the trade may ‘come back’ to the United States, the changes in world population and fast-paced creation of new free trade blocks outside of North America means that other markets will seize this opportunity to deepen their trade relations and the U.S. will find itself in a more competitive and varied trading environment. This change was inevitable, but the recent trade war has sped up its development. Agile, strategic companies will react to this market change by diversifying and partnering with colleagues in the growing markets of Africa and Asia. Those that are slow to change will find it hard to remain competitive in this brave new trade world.
Kirk Samson is the owner of Samson Atlantic LLC, a Chicago-based international business consulting company which offers market research, political risk assessment, and international expansion assistance. Mr. Samson is a former U.S. diplomat and international law advisor who lived and worked in ten different countries.