Trade finance – a connecting force

At the start of 2019, Dr Rebecca Harding joined us in the Trade Finance TV studio as our very first guest and predicted a rocky year ahead for trade as globalisation morphed into localisation. You can look back at “Trade growth drivers and the risks of derailment,” here.

A year on, she returns – with more uncertainties on the trade horizon – and that is quite apart from Coronavirus-triggered disruption. More geopolitics, in particularly the ramping up of the weaponised language between the US and China during 2019, created uncertainty in markets and investment. This in turn dampened economic growth and trade flows around the world. “Trade is being used as a proxy for a much bigger battle going on between the superpowers,” says Harding.

She points out that while the 15 of January 2020 Phase 1 deal between China and the US have locked in a few things around tariffs, it is silent on technology, intellectual property and dispute resolution. As for the UK post Brexit, she believes there will be a deal with the EU – the combined UK/EU and US supply chains make that a necessity.

But given that around 80% of world trade is financed by some form of credit or guarantee, trade finance has, she concludes, “the capacity to bring the world back together again”.

Tune in to find out more.

Transcript of interview:

Clarissa Dann Welcome to Trade Finance TV, your insight into the global trade climate for importers, exporters and their financiers. I’m Clarissa Dann. Joining me today in the studio is trade economist Dr. Rebecca Harding. She’s going to tell us more about the patterns of trade disputes and their impact on economic growth.

Rebecca, welcome back to Trade Finance TV. I can’t believe it’s been a whole year, can you?

Dr. Rebecca Harding A whole year, it beggars belief doesn’t it?

Clarissa Dann It’s been a funny old year, and particularly rocky for trade in 2019. What do you think has been going on?

Dr. Rebecca Harding 2019 was a rocky year for trade and I think the reason why is largely because of the uncertainties that we saw. And a lot of that was geopolitics right at the beginning of the year. Everybody was saying this is going to be the year of geopolitics. And what did we have? We had a real ramping up of the weaponized language, if you like, between the United States and China, something that I’d actually said was beginning to evolve back in 2017 with the weaponization of trade. And we began to see a lot more of that happening during the course of the year. We saw action as well for the first time which created real uncertainty in markets around investment. Alongside that, we saw the perpetual uncertainty around Brexit. With the underlying tensions in the Middle East between the United States and the Middle East as well, so there’s been this general climate of uncertainty of held back investments, and that obviously had a very serious impact on not just economic growth, but also trade flows around the world.

Clarissa Dann You’ve written a book, another book, called Gaming Trade, and the stakes are getting higher aren’t they?

Dr. Rebecca Harding The stakes are getting higher, and what’s what’s happened is that the world has moved on from just a belligerent, linguistic rationalization of trade, if you like. Trade is now actually being used as a proxy for a much bigger battle that’s going on between the superpowers. And I can include Russia in that, although it’s not in trade terms necessarily. But this is control of new technology, new digital technology, and if you like, the cyberspace and the financial networks that are behind all of that. So one of the phrases in the book is, ‘this isn’t boots on the ground war anymore, it’s banks on the ground.’

Clarissa Dann You talk about hegemony, what do you mean by that?

Dr. Rebecca Harding It means control. It means power over. That’s its meaning. And what the conflict is at the moment is particularly between the US and China, for this control of the digital space. And you can see that very clearly if you look at the Phase one negotiations fx, between China and the United States and the deal that was done on the 15th of January this year, what they’ve done is lock in a few things around tariffs and actually it’s noticeable what is left out of that agreement. So technology, intellectual property, financial investment, order and dispute resolutions, all of those complicated things have been left out.

Now, if you look at actions around the time when that deal was being sealed, you actually saw the Commerce Department having new announcements about constraints on trading with Huawei. You also had conversations about financial networks as well. So there is a lot going on that’s not actually in these trade negotiations. So this is a much bigger battle, it’s a strategic game.

Clarissa Dann OK, lots of things on that one, and I do advise our viewers to read the book. Let’s turn to the UK now. Do you think we’re going to sort of end up leaning more towards the US or actually end up carving something out with Europe?

Dr. Rebecca Harding So in terms of the UK, I don’t think we’re going to have a huge amount of choice. I think we have to have an agreement with Europe. And if you read what the Boris Johnson government has said, actually, they’ve said they want the right to negotiate their own regulations and rules. They don’t necessarily want to negotiate their own regulations and rules. So you have to remember, this is straight out of the Trump playbook, so in terms of how this is being communicated, there’s a lot of subtlety there and the devil is in the detail.

In the end, the UK/European arrangement; it affects supply chains, it affects trade finance, it is 48% of UK goods trade, and it’s more than that in services trade. So in actual fact, we have to think that there is going to be a deal. That deal will be a bit like the China/US phase one deal in so far as it will be relatively limited. And one of the first things they might agree to do is kick some of the complicated stuff beyond that phase one deal, if you like.

Clarissa Dann Let’s look at the wider trade corridors for the rest of the world. Now, do you think these will rearrange themselves again and reshape themselves as the decade unfolds?

Dr. Rebecca Harding So I think what’s likely to happen is that we’re going to see more intra-regional trade, so I’ve been looking at our own forecasts for global trade this year and next year and over the next five years, and what we’re beginning to see is more activity within the trading blocks is beginning to happen now. One of these things is actually quite concerning for the UK; there’s been quite a big increase in intra EU 27 trade since since the UK voted to come out of the European Union.

Leaving that on one side there is more intra-regional trade, we’re seeing that with ASEAN. We’re seeing it, partly as a result of, you know, ASEAN growing. It’s been happening for a while, but also because of the US/China trade conflict. So we are beginning to see more of this intra-regional trade happening, even against the backdrop of a reconfiguration of a lot of the trade relationships. So what happens with the US/China arrangement fx is, we’re going to see a weakening of the World Trade Organization unless the US sees that as a way of aligning itself with European Union and Japan to get what it wants in terms of state aid and subsidies. It’s all like a game of chess at the moment.

Clarissa Dann In the middle of all this is how it’s financed. And as we know, around 80+% of world trade has some form of credit supporting it. So how do you think all this will affect the supply and demand for trade finance?

Dr. Rebecca Harding I think trade finance is in the middle of a huge transition. So what we’re seeing with trade finance is a move towards greater digitalization; so more users of digital transfers and more use of non-manual processes. In a sense that process is politicized because you’ve got messaging, you’ve got the types of digital transfers that are being made beholden to the the technology system that it’s operating within. So it’s part and parcel of these frameworks. The frameworks between the US and China we’re seeing the decoupling of technology around US or Chinese networks, and trade finance is going to get caught up in that. There’s no doubt about it.

So for trade finance and trade finance practitioners, last year was a good year so far. And there’s every chance that this will continue because trade finance actually has the capacity to bring the world back together again. And that’s something that I’m actually quite positive about; to be multilateral, and say, ‘well, we’ve always worked with China, this is just globalization. We’ve had operations in China and across Asia for many, many years, centuries, in fact. We operate like this.’ So we have to bring those technologies together, and actually, that’s a very positive message for the sector to take forward.

Clarissa Dann And on that note of that very positive message, I’d like to thank Rebecca Harding for coming in and talking to us today.

Dr. Rebecca Harding Thank you.

Clarissa Dann I’d like to thank Dr. Rebecca Harding for her insights on where trade has gotten to at the dawn of this new decade, and of course all of you, for watching.

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Published on March 10, 2020

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  1. Its a good and pretty informative show. International Trade has not only been the heralding force of developing commerce and trade overseas and intra – continents business contacts but as well triggers in helping developing understanding about business acumen between different nations globally and could go long way in developing and exchanging social and cultural values of the underlying international traders and trade finance bankers.

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