When Elephants Fight

Trade Compliance Consulting

How conflicts between powerful countries threaten emerging markets

 

When elephants fight, it is the grass that suffers. – African proverb

 

During his 2016 US election campaign, a key pillar of President Trump’s platform was that the US has been “cheated” in trade, and that he would do something about it. In particular, Trump regularly pointed to US’s trade deficit with China. Fast-forward only two years and there’s little sign of a resolution in the current trade war between Washington and Beijing.

This concerns us at BlueBlox, to the extent that developing countries look up to and depend on the superpowers.

For instance, small, open economies like Taiwan, Singapore and Malaysia, are most exposed to US tariffs on imports from China, due to their role in global supply chains.

Chile would also be hard hit, as it produces the copper used in China’s electric sector.

South Korea, Chile and Taiwan are most vulnerable, with nearly 30% of their exports going to China in 2017. And Russia will also be affected, with China taking 10% of its exports.

So, what might the implications be for emerging markets, especially in light of the World Trade Organization’s (WTO) Trade Facilitation Agreement (TFA)?

In our last opinion piece, we explored this agreement, which was entered into force on 22 February 2017 to alleviate, among other things, the vast quantity of ‘red tape’ that exists in moving goods across borders. It presents a significant burden to small- and medium-sized businesses of all kinds.

We raised two concerns; namely:

  • that less developed countries require technical and financial assistance from the international community, if they are to reduce trade costs; and
  • that some of the TFA’s anticipated measures have self-generated deadlines or timelines, that are approximately 10-20 years in the future.

The trade war has the potential to prejudice the availability of the former, and to discourage the advancement of the latter. In both cases, it’s possible that the wrong message will be communicated to emerging markets; for instance:

  • They might believe that implementing TFA strategies are not as relevant as they had been led to believe, thus delaying the process even further.
  • They might question the TFA’s drive to reduce trade barriers and increase trade through better processes and transparency. After all, superpowers are building more trade barriers.

For this reason, the BlueBlox team advises care and caution.

Our message to the emerging market is:

‘Continue on the path laid out by the WTO and the TFA, because that’s the path to enrichment. Don’t be derailed. Trust the 70 years of trade facilitation negotiations conducted by your predecessors, and stay the course.’