Despite a tumultuous couple of years for global trade, signs of recovery are appearing on the horizon in 2022. While COVID-19 restrictions and supply chain bottlenecks significantly compounded pre-existing trade challenges, growth is rebounding from historic lows and trade liberalization is advancing in some parts of the world.
The big picture: Global trade growth in 2022 is likely to moderate compared to 2021 as lockdown restrictions lift and spending on services rise, although the recovery will be uneven across countries. While some large goods exporting countries have returned to pre-pandemic levels, tourism-reliant economies will take until 2023 or beyond to recover.
Here are three key trade trends Canadian companies should be aware of as they look to expand internationally in a year where the trajectory of recovery remains uncertain:
Goods trade: A strong but uneven recovery
Global goods trade volumes are about 9% above what they were pre-pandemic and 7% above what they were in 2020. However, the strong rebound in goods trade has largely been driven by demand for pandemic-related products and electronics supplied by mainland China and other emerging economies in Asia. On the other hand, advanced economies like the U.S. and the U.K. have been slow to return to pre-pandemic export levels.
Services trade: Tourism rebound is critical
Services trade continues to lag, with services export growth only returning to positive territory in Q2 2021—much slower than the rebound in goods. Growth has been held back by the collapse of tourism amid COVID-19 and depending on when border restrictions are lifted and consumer confidence recovers, it could take between two and a half to four years for the industry to recover to pre-pandemic levels. With travel accounting for about 25% of global services exports, it’s hard to see a recovery without a strong revival in tourism.
While the evidence suggests that digitized services (e.g., computer and financial services) have performed better than traditional ones throughout the pandemic, it hasn’t been enough to support a strong recovery in overall services trade.
Key global trade supports: Strategy and policy
Despite significant disruption, businesses have continued to adapt their supply chains and could benefit from ongoing trade liberalization in various parts of the world. Many retail companies are still looking to build up depleted inventories, while others are switching from a just-in-time (JIT) to more of a just-in-case (JIC) manufacturing model.
Global trade liberalization is also being strongly supported by trade policy developments and new free trade deals, including:
- The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is in force for Canada, Australia, Japan, Mexico, Singapore, New Zealand, Vietnam and Peru i
- The Regional Comprehensive Economic Partnership (RCEP), which comprises of the ASEAN countries, Australia, China, Japan, New Zealand and South Korea, representing 30% of global GDP and world population ii
- New bilateral trade deals initiated by the U.K., the EU and India with willing partners
“Canada has been quite active in the trade negotiation space, particularly with CPTPP but also with the renegotiation of NAFTA and a number of bilateral deals,” says Shanella Rajanayagam, Trade Economist at HSBC Bank. “These liberalisation efforts should help to provide new trade opportunities and a means of market diversification for Canadian businesses as they look to build resilience post-pandemic.”
While certain protectionist measures have arisen during and prior to the pandemic, barriers and tariffs remain historically low and trade liberalization is advancing.
By taking advantage of these new deals, and ongoing open negotiations with willing partners, Canadian companies will be well-positioned to navigate the future of global free trade.
Thinking about how trade trends could impact your business this year HSBC’s working capital solutions can help make trade easier. Contact HSBC Bank Canada to discuss strategies and services to succeed.