TPT July 2024

INDUSTRY 360

Realignments in international trade How geopolitical tensions are influencing the flow of goods

By Eric Lundin sales engineer and marketing manager, T&H Lemont Inc

agreements and disarmament to reduce the ability to wage wars and negotiation to prevent disagreements from escalating. It wasn’t effective enough to prevent World War II, which led to a second attempt, in 1951, in the form of the European Coal and Steel Community. Its goal was to pool resources and create a common market for the trade of iron and steel, making war among its members unthinkable and materially impossible. Other treaties updated the ECSC; in 1993 the Maastricht Treaty created the current inception, the European Union. The developments from 1951 to 2024 aren’t difficult to understand. A period of peace leads to greater interdependence. As time passes, political peace and economic interdependence grow and reinforce each other. The idea that peace and prosperity go together comes up repeatedly in the current literature about international trade. The biggest danger is that some extreme views become mainstream, leading to calls for deglobalisation. Recent examples include a political disruption, the war in Eastern Europe; the Covid-19 pandemic; and the uneven distribution of emerging wealth. All of these have been cited as downsides to excess interdependence. An article in the June 2023 issue of Finance & Development, published by the IMF, dissects the trends that threaten trade. Titled “The Growing Threats to Global Trade”, it cites the 1990s to 2010 as a modern golden age for trade, one in which the world was relatively peaceful and prosperous, with lengthening supply chains reinforcing the peace. However, stresses emerged.

Stated simply, the two sides of the coin that make up international trade are engagement and isolation. The interdependence of engagement makes more goods and services available to consumers, spurring competition, innovation and job growth. Imports provide greater choice as competition keeps prices low, while exports support employment. Of course a drawback is that lower-cost foreign goods have the potential to disrupt the domestic marketplace by displacing workers in some industries, specifically those in which the domestic industry is at a disadvantage relative to its foreign counterparts. The benefits and drawbacks of isolation are essentially the opposite, supporting domestic industries in return for fewer choices, higher prices and less innovation. Known as globalisation, and even hyperglobalisation since the 1990s, interdependence often cited as bringing more benefits than drawbacks. For example, the number of people living in extreme poverty, usually defined as an income of $1.90 per day, fell by more than half (1.8 billion people to 775 million people) from 1990 to 2015. It also succeeded in another measure, narrowing the wealth gap between the industrialised and industrialising nations. Meanwhile, the array of affordable goods available throughout the world increased exponentially. The aforementioned increase in competition rewards those that take strides toward greater efficiencies, benefitting consumers and improving goods and services. Where does the world stand today? The trend toward greater globalisation is not ending, but in the last few years, it has slowed as the international trade landscape has shifted. In recent years, trade policies have drifted toward independence and isolation. The World Trade Report 2023, published by the World Trade Organization, sets the stage for describing the trade environment of the 21 st century with this stark description of the early decades of the 20 th century: “The multilateral trading system overseen by the World Trade Organization was created just over 75 years ago … [to] play a crucial role in achieving peace and prosperity. This vision had emerged as a central lesson from three disastrous decades of deglobalisation, marked by two world wars, the Great Depression and political extremism.” Likewise, the European Union’s foundation was laid more than 100 years ago. The League of Nations, created in 1920, was founded to prevent war. It relied on collective security Peace and prosperity (and more peace and more prosperity)

Although some pundits have stated that the UK led the EU in gross domestic product before Brexit, the data doesn’t make a compelling case. And while Brexit certainly changed the British economy, Covid-19 and the fallout from the hostilities in Eastern Europe muddy the waters Sources: Eurostat and the Office for National Statistics

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JULY 2024