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  May 27th, 2018 | Written by

The Future of Trade

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  • Blockchain is ripe for adoption, providing faster and better ways to handle international trade workflows.
  • Technology could reduce the $1.8 trillion in global trade costs by 20 percent.
  • Geopolitical factors continue to challenge traditional tradeflows and associated tariffs.

Sweeping advances in technology and finance will fuel global trade over next decade. Technology could bridge the current $1.5 trillion trade finance gap, unlocking new opportunities for trade across borders.

Those were the main conclusions of global Future of Trade research from DMCC, a government of Dubai authority on commodities trade and enterprise.

Blockchain is ripe for adoption, according to the report, providing faster, more secure and effective ways to handle workflows in order to move goods across international borders and also potentially helping reduce up to 20 percent of the actual physical paper costs associated with global trade, currently estimated at $1.8 trillion.

The report highlights the emerging impact of digital transformation for importers and exporters, along with the ongoing shifts in global economic power.

For the last twelve months, DMCC sought to discover what is in store for the future of trade. The organization gathered 250 global industry leaders, academics, and experts in six commodity trade hubs to discuss how trade will change in the next decade and how it will drive the global economy into the

next phase of growth. The report is a synthesis of the insights gained from these discussions and lays out the conclusions.

On the digitalization front, the report found that global trade and trade finance are at the cusp of a digital revolution driven by financial technology and blockchain. The world’s economic center of gravity is shifting towards Asia with new manufacturing hubs emerging. While crossborder trade is still synonymous with paperwork, and 20 percent of total trade costs of $1.8 trillion is related to paperwork, blockchain, advanced robotics, and the Internet of Things represent profound shifts for the future. Technological advances are rapidly streamlining business efficiency for global importers and exporters, reducing costs and increasing productivity.

Blockchain is seen as a game changer for the tracking of goods and shipment as well as improving trade finance. By providing a secure, decentralized record of transactions, a large volume of paper-based documentation would not be necessary. Reducing supply chain barriers to trade could increase global GDP by five percent, and trade volumes by 15 percent.

The Industry Digitalization Index (IDI) measures four separate functions of digitalization: Upstream supply chain, production, downstream supply chain, and digital infrastructure. The IDI tracks businesses’ digitalization progress across sectors.

Geopolitical factors continue to challenge traditional tradeflows and associated tariffs, from the US election, to the UK’s Brexit through to China’s Belt and Road initiative. The report sets out to identifiy how each will this impact global trade, evaluating 10 key commodities trading hubs based on three factors: commodity endowment, institutions, and location.

The $1.8 trillion gap in trade finance refers to the 50 percent of SME funding applications that are rejected by banks. A survey conducted in 2016 also found that banks had to spend more than $60 million on due diligence measures in relation to SMEs.

Digitalization, primarily in the context of fintech and blockchain, has brought trade finance to the center stage. Blockchain has the potential to bridge the trade finance gap and finance solutions are becoming accessible to a much larger extent than previously. In this new environment, the role of banks is up for debate.

The DMCC research shows that startups and SMEs are no longer as reliant on banks as before, and that new alternatives to seek finance is rapidly gaining ground. The potential to significantly reduce cost and bureaucracy with blockchain, in addition to new alternative financing solutions becoming available is a game changer for the future of trade.

With the decline of natural resources and the rise of social responsibility, consumers are increasingly demanding ethically sourced and environmentally friendly goods. Government bodies are enforcing regulation. Sustainable supply chains can reduce the impact on the environment as well as unlock opportunities to improve operational efficiencies.

To sustain a strong business in the coming decade, a sustainable supply chain is key. Industries are implementing various sustainable initiatives throughout their business model to ensure environmental consciousness, ethical compliance and sustainability. This research explores sustainable business models and how they will impact global trade.