
What is possible? International Insights
Your hub for international corporate insights. The latest on international trade, global corporate treasury, FinTech and other topical content.
The past year has brought about fundamental changes to global trade and the trade finance landscape. We discuss some of the emerging themes to consider to help build resilience for the future.
Despite the significant disruption caused by Covid-19 around the world, global supply chains have generally proved their resilience to ensure the continued flow of goods and products over the course of the pandemic. That said, the past year has also been a wake-up call for many businesses and their treasury teams by exposing their reliance on key suppliers and countries, as well as highlighting supply chain risks.
In the first Treasurer’s Forum of 2021, our host Pushkaraj Gumaste, Global Head of International Corporates at Barclays, was joined by an expert panel of global business leaders1 to discuss some of the key themes and trends emerging from the past year, and the ways in which global trade finance is expected to be ‘reset’ during 2021.
The US is, of course, a major driver of global trade flows – together with China, it accounts for 40% of world GDP^ – so any US policy changes affect economies and trade around the world. With President Biden now in office, it is widely expected that the US will return to a more multilateral approach to foreign and trade relations. So, while some of the existing barriers to US trade may remain in the short term, there is likely to be less volatility and more predictability under the new administration, particularly in terms of US-China relationships and tariff barriers. Anthony Blinken’s appointment as Secretary of State could be seen as a positive signal for transatlantic trade and the renewal of US-European partnerships, along with the US-Mexico-Canada agreement.
The $1.9 trillion US stimulus package, roughly equating to an additional 9% of national income to US spending power this year, is another important trade indicator. The OECD estimates^ that the programme will increase global growth during 2021 by approximately 1%. Furthermore, potential continuation of US lockdowns are likely to result in higher domestic consumer spending; a recent Allianz report^ suggests this could result in an extra US$360 billion worth of imports this year alone.
The pandemic has exacerbated the global trend for some manufacturing to be brought closer to home, particularly where there's been an over-reliance on other countries. Increased political and competitive pressures have forced some manufacturers to increase domestic production and reduce their dependence on single sources of supply. Covid-19 has also encouraged some countries to gain more control over certain products, such as PPE, medical equipment, high-tech consumer goods and semi-conductors.
The reality of globalisation, however, could mean that many businesses may struggle to quickly and easily adjust established supply chains, at least not without significant investment in their respective industries. Moving towards more regional or local supply chains can be an incredibly complex and costly exercise, particularly given many manufacturers’ reliance on not only finished goods, but multiple component parts sourced from China.
While many global value chains are highly efficient, they are often also highly vulnerable to global risks. The past year has been a stark reminder that companies and their treasurers need to fully understand their supply chains, and the associated risks, to ensure resilience for the future.
Whereas environmental, social and governance (ESG) considerations have often been regarded as ‘nice-to-haves’ in the past, they are now an essential and permanent facet of trade and trade finance. While customers and supply chain partners continue to care about the long-established factors such as quality, cost and location, ESG credentials are now often their most important consideration when choosing who to work with.
Multinational corporates are increasingly expected to demonstrate that they are partnering with sustainable suppliers who are compliant with ESG regulation. Indeed, more and more large buyers are using ESG scorecards to evaluate potential suppliers, while the availability of supply chain finance solutions can be a powerful incentive to encourage suppliers to become more ESG-compliant.
There are already a number of ESG-linked green/environmental trade loan and guarantee products on the market and banks, including Barclays, continue to develop new sustainable solutions, which in future will also include socially-linked trade instruments to help clients meet their overall ESG objectives. Treasurers have an important role to play in steering their businesses towards sustainable finance.
The pandemic has resulted in unprecedented levels of cross-industry collaboration between countries, businesses and supply chains. At the same time, it has also accelerated the geopolitical trend towards protectionism associated with medical equipment, pharmaceutical products and vaccine-related research. The healthcare sector, however, is a prime example of where one country moving too far ahead of others doesn’t necessarily improve the overall global situation.
While a certain amount of collaboration between countries is clearly important, competition will always be a key driving force behind global trade and national governments will strive to demonstrate that they are able to stand ‘toe to toe’ with other countries, particularly China.
Consumers around the world will continue to seek the best prices for products, and companies will seek to operate as efficiently as possible. A key challenge for multinational corporates is the need to make their supply chains more resilient without weakening their competitiveness.
Covid-19 has rapidly accelerated technological advances across most industries and created strong demand for new and innovative digital tools that support trade.
These will be vital in delivering the visibility, transparency and data-sharing that are essential components of the future of supply chains and trade finance. However, while technology is helping to advance many individual aspects of global trade – such as logistics, shipping and banking – the key challenge lies in is getting these different technologies to work together seamlessly.
For trade digitisation to deliver its true potential, all parties involved in supply chains and trade transactions need to be using platforms that allow for inter-operability and the seamless exchange of digital information within complimentary legal frameworks and rule books.
1The panel for Barclays’ April 2021 Corporate Treasurers’ Forum:
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