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The EIU has Determined the 5 Factors Defining a New Era for Global Trade in 2020 and Beyond

17 June 2020

5 minute read

The EIU has Determined the 5 Factors Defining a New Era for Global Trade in 2020 and Beyond

But what does it all mean for Finance and Procurement professionals? Read more to learn what Pete Swabey of the Economist Intelligence Unit (EIU) had to say about recent research concerning the state of the global economy now and in the near future.

 

The world economy is in a never-ending state of flux, but for several years, companies have been accustomed to a relatively stable global trade environment in which they operate. That is no longer the case. The global economy today shaping global trade is seeing a higher level of volatility, driven by underlying trends and rumbling murmurs that have been around for several years.

Basware’s own Katie Colbourne sat down with Pete Swabey of the Economist Intelligence Unit (EIU) to discuss a new report that dives into these trends and the expected resultant global impact on trade and what that means for procurement and finance professionals.

Here, we provide a quick summary of the webinar held on May 20th, along with some key questions, followed by a breakdown of the published report that expands on these factors, written by the EIU and sponsored by Basware. You can also hear more of Pete’s views in the first episode of a new Podcast – Basware Bytes.

 

Basware webinar: The Changing Dynamics of Global Trade

During this webinar, Swabey unveiled the 5 key trends that are shaping global trade right now, and what’s driving them:

Covid-19

The top trend is Covid-19 and its immediate and ongoing economic impact on trade, GDP, and consumer confidence. The immediate prognosis is not good on the exchange on the global trade.

While the supply chain disruption is an important factor, the drop in demand is going to be a bigger factor in shaping the global economy. The big question is the speed with which the global economy can recover.

US-China trade accords

Before Covid-19, the biggest factor in global trade was the tensions between the US and China, their Phase 1 trade deal, and the tariffs they impose on each other and other countries. Whilst not all companies have offices in these countries, knowing about and staying on top of potential regulation, tax, and tariff changes will be paramount to accurate cash flow management.

Europe trade relations

While larger in monetary volume than the US-China trade, the EU has also seen a lot of tariff changes over the last few years. All of which again will have far-reaching implications for businesses, especially in the finance and procurement departments who will be under even more pressure to generate savings. The EU also emphasises their “green agenda” so, sustainability and low-carbon footprints should be part of boardroom discussions right now.

Rising non-tariff protectionism

Government subsidies, rather than tariffs, are perhaps the larger form of distortionary measures likely to hamper global trade. Subsidies make it harder for foreign companies to compete, and it may give subsidised companies an unfair advantage in their industries when it comes to purchasing goods and/or services.

Taxing digital trade

The WTO moratorium, where members of the World Trade Organisation in 1995 agreed to not impose customs duties on electronic transmissions, is up for review and is not expected to be extended. This will have an unprecedented impact on global trade, and companies that rely on the internet to do international business will suffer.

Implications for finance and procurement

Supply chains need certainty, and that is currently lacking. To address the uncertainty that companies are facing, insight and agility are key.

Insight means visibility into the supply chain-knowing who your suppliers (and their suppliers) are, and their exposure to the risks associated with coronavirus, including volatile price fluctuations, reduced demand for goods and services and quite simply finding stable suppliers amidst the chaos.

Agility means that companies need to be able to switch suppliers when significant changes happen and be as agile as possible to minimise risk. They're exposed to each of the 5 trends, which are likely to result in price fluctuations, affecting cash flow. Companies will need to be aware of these fluctuations and focus on those that particularly affect their company and their customers’ companies in order to protect their financial position.

In the following Q&A session, several key questions were asked:

1. How do you think increased tariffs by China have amplified their position as a global trade power? 

2. How do you see Europe's role increasing as China's role is changing?

3. Beyond Covid-19 – which of the other four factors would you say will be the most crucial to consider over the next 12-24 months? 

4. How quickly do you think consumer and supplier behaviors will change ‘back’ or adjust to the ‘new normal’ after the pandemic eases?

To get the full picture of what was discussed, plus Pete Swabey’s answers, you can view the webinar on-demand.

Download the new report “A New Era: Global Trade in 2020 and Beyond”

This report, written by The Economist Intelligence Unit and sponsored by Basware, focuses on the key factors driving global trade and, by extension, business transactions in the coming year. It draws on in-depth interviews with finance and procurement experts and executives exploring how companies in a post-Covid-19 world will need to identify and adapt to these factors to thrive in the “new normal.”

Want the full details and key statistics from the report? Download it here.