2016 has proven to be a challenging year for global trade. Fears of mass migration, the re-emergence of far right politics and increasingly isolationist attitudes have had an impact on global trade, and it seems that these geopolitical risks are far from over. The following are among the biggest challenges global trade faces in 2016.
The United Kingdom’s decision to leave the European Union has caused uncertainty in a number of markets, both in Britain and the world at large. Sterling has dropped on foreign exchanges, UK consumer confidence has hit a three-year low and Britain’s car industry, retail sector and building companies have all noted that the prospects for growth are lower than before the referendum. In addition, a range of foreign companies have cut back on British investments while others are said to be considering moving operations to other EU countries, such as Germany and Ireland. It is unknown how long the slowdown of the post-Brexit British economy will continue for as the UK government has yet to trigger Article 50, the formal process for Britain’s exit. However, until Britain leaves the EU and creates new trade agreements, Brexit will continue to be one of the biggest geopolitical risks negatively impacting global trade.
2. Protectionism and Trade Barriers
Protectionism and trade barriers are on the rise in 2016, threatening global trade. Issues like China’s export promotion policies can trigger import tariffs in other countries and non-tariff barriers on a global level. Terrorist attacks and fears over uncontrolled mass migration are fueling support for far-right policies across the world, potentially damaging existing trade deals and migration agreements. Countries may also introduce quotas for work visas for foreign nationals in an attempt to stem the flow of migrants, countering the benefits that come from the free movement of labor. The prospect of Donald Trump becoming president of the United States is also of concern as it is likely he would pursue an isolationist agenda for the country.
3. China’s South Sea Ambitions
The rising political tensions in Asia, such as China’s claim to sovereignty over most of the South China Sea, is affecting regional trade and foreign investment. China’s continued reclamation and construction of military facilities in the area are inflaming tensions between China, Japan, the Philippines, Vietnam, Taiwan and more. The territorial dispute has resulted in the involvement of outside parties, namely the United States, who assert that China has no right to claim the area for itself. This in turn has resulted in a high militarized presence of the various players, and the possibility of a more militarized Japan. The area in question is home to a major shipping route and important fishing grounds shared by many people across the region. It is also thought that the South China Sea may yield high quantities of natural resources like oil. There are concerns that the disputes could lead to an armed conflict and the destabilization of the region at the expense of current trade and peace agreements.
The risks facing global trade in 2016 are complicated to say the least. It’s difficult to predict how long these geopolitical risks will continue for and the total impact they will have on global trade. A greater effort must be made by governments to address the concerns while maintaining a strong relationship with other countries. We’re only halfway through 2016, but we can expect the rest of the year to be an interesting if not challenging time for global trade relations.
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