Overview

Global trade in 2021 was significantly impacted by the pandemic and much of the impacts secondary effects carried into 2022. According to data from the World Trade Organization (WTO), global trade in 2022 reached an estimated $32 Trillion, solidifying a record year for global trade. This came from continued demand for foreign goods especially from European and American markets. 

However, despite the record setting year, a slowdown began in the second half of 2022 and many organizations expect the slowdown to continue or worsen in 2023. This comes as inflationary effects continue and global energy prices are expected to remain high in the new year.

Trade Barriers

A key trend that has emerged in global trade starting in 2021, is the increase in protectionism. As countries struggle to revive their economies, many have implemented measures such as tariffs and import quotas to protect their domestic industries. This led to a decrease in trade and a decrease in economic growth.

These trade barriers also weaken the globally interconnected supply network by artificially increasing the costs associated with production thereby causing negative effects to global consumers and stakeholders. In 2023, It's possible that some countries will continue to hold their existing trade barriers in place, but during a time of such supply chain reorganization, we are concerned that these trade barriers may influence companies to make decisions that may only pan out in the short term. This will undoubtedly cause issues down the line once trade barriers are lifted and more economically viable opportunities present.

Supply Chain Shifts

Companies are moving away from relying on a single country or region for their supply chain due to the increased risks and vulnerabilities that come with this approach. The COVID-19 pandemic had highlighted the fragility of global supply chains that rely heavily on a single source of production. When production in one country or region is disrupted, it can have a ripple effect throughout the entire supply chain, leading to delays, shortages, and increased costs.

One example of this is the impact of the pandemic on the global semiconductor industry. According to data from the Semiconductor Industry Association, the global semiconductor market experienced a revenue decline of 14.7% in 2020 due to supply chain disruptions caused by the pandemic. It's important to note the semiconductor industry has yet to rebound from extensive backlog and shortages. 

Therefore, we expect that carrying into 2023, companies will continue to become more conscious of their exposure to supply chain risk and will likely take steps to mitigate those risks by restructuring their supply networks. This will be beneficial for companies and the greater global community as new hubs of production are incorporated into the larger global supply chain network thus creating a more globalized and less risky environment for global trade.

Geopolitical Stability

Geopolitical stability remains a top concern when discussing the effects on global trade. The ongoing war in Ukraine has caused numerous spillover effects that could tip the scales. The war will likely continue to exert pressure on global grain prices, which have numerous effects across agricultural products. Although the war in Ukraine remains a top global issue, the possibility of an event taking place revolving around China and the island of Taiwan could be unfathomably more damaging, even if the incident is minor. It will be crucial that the world works to preserve stability in this region not only for 2023, but for the foreseeable future. 

Conclusion

Based on current trends and projections, it is likely that the state of global trade will continue to be impacted by the ongoing pandemic, with a focus on reshaping global supply chains, and a possible increase in protectionism.

The ongoing COVID-19 pandemic has had a significant impact on global trade, leading to a decline in economic growth and a reshuffling of global supply chains. As the world continues to recover from the pandemic, it is likely that we will see a continued focus on diversifying supply chains and moving production closer to the point of consumption. This will help to mitigate risks and protect against potential disruptions in the future.

There may also be an increase in protectionism in 2023 as countries seek to revive their economies and protect domestic industries. This could lead to a decrease in trade and a decrease in economic growth. However, it's possible that there will be a push towards more multilateral trade agreements, in order to create a more stable and predictable trade environment, and to promote economic recovery.

In addition, it's possible that the digitalization of trade will continue to advance in the next two years. With the increase in e-commerce and digital technologies, companies will continue to adopt digital platforms for trade and logistics, making it easier and more efficient to conduct business across borders.

In summary, The trade environment will be dynamic and it's important for companies to be adaptable and flexible in order to navigate the changes.

January 25, 2023

Author: Dylan Boehm