Review: International Trade

Viviane Simond, Express Trade Capital

The international market is in a particularly remarkable state of flux due to a wide range of contributing factors. Between the effects of climate change, political upheaval, and shifting consumer habits, the future of international trade has seldom been so uncertain.

Climate change may prove to be the most pervasive influence on the international market at large. Recent studies predict that climate change will generate violent storms and intense flooding that could damage ports, railways, roads, and harvests in high-traffic areas. Our ever-increasing reliance on global trade routes compounds the difficulties governments face in their attempts to manage the effects of climate change. This combined effect of growing demand and dwindling supply threatens to create raw material shortages and unexpected price hikes.

Climate change causes harvests to be more variable, which threatens the reliability and integrity of the infrastructure on which international trade depends. There are fourteen major choke points around the world (including the US Rail Network, Panama, Suez-Canal, etc.) that are vital to adequate distribution of food supplies. The US, Brazil, and Black Sea collectively account for about 53% of global exports including dietary staples like wheat, rice, maize, and soybeans. Any major obstructions to one or more of these choke points could lead to a supply shortage and price spiking. These issues may risk systemic stability and human security in the world’s most insecure and politically unpredictable regions if governments don’t devote significant resources to solutions. Thirteen choke points have been subject to closure or significant traffic restriction over the past 15 years.

Terrorism, even just one instance in one location, can hinder international trade throughout an entire region. Attacks also affect long term economic activity, since trade is typically condensed for about five years after an attack takes place. Counter-terrorism efforts delay shipments, which hurts vendors, buyers and shippers alike. As a result, transactions take significantly longer. Food products become much more susceptible to shipping delays and supply chains are disrupted due to tighter border regulations. Unfortunately, these delays can be extremely expensive.

In the wake of terrorist attacks, airport security surcharges and insurance premium rates increase, as do shipping and customs requirements, which cause delays and increased trading costs across the board. Unfortunately, non-tariff barriers established in the name of counter-terrorism, like restrictive outsourcing policies, often tend to protect certain industries more effectively than they do individuals. Unrestricted trade enables nations to work together and fuels economic prosperity and development. By reducing trade, counter terrorism policies inadvertently drive a wedge between trading nations and hurt their economies. Consequently, countries that lose money due to trade restrictions are less able to combat terrorism.

Brexit will likely have a massive effect on international trade patterns, depending on how British Parliament implements it. Since immigration concerns were among the primary driving forces behind the Brexit vote, the UK is likely to lose a significant portion of its migrant workforce. This will likely put a damper on productivity, economic growth, and job opportunities. Furthermore Scotland, which voted overwhelmingly to remain in the EU, intends to hold an independence referendum in response to the economic difficulty it will probably suffer as a result of Brexit. This proposed “Scexit” would alter the UK’s political character and potentially increase the rift between the UK and the EU.

During the Brexit proceedings, the UK will have to renegotiate legal framework for their trade relationship with the EU as an outsider. In the process, the EU will probably implement tariffs on UK-produced goods in an attempt to balance the scales. As of now, the UK is still a part of the EU, so British companies can trade with the EU on a tariff and quota free basis. There are rumblings of intimidation tactics between EU countries and the UK, including a possible automotive trade war between the UK and Belgium. Fortunately for the UK, their trade relationship with the US will not be affected. However, when Brexit is fully in place, Europe and the UK’s relationship as well as their trade agreements will probably be quite different.

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