Navigating the new realities of global trade

Navigating the new realities of global trade

By Tari Ellis, Alan FitzGerald, Nadia Terfous, and Yassir Zouaoui

The long-term future of global trade will be reshaped by technological shifts and changes in international trade policy.

During the two decades before the 2008 global financial crisis, the world economy seemed to be on an irreversible course of ever-deepening globalization. Global trade expanded nearly eightfold in the 1990s and 2000s and doubled as a share of global gross domestic product (GDP). However, governments and companies around the world are now facing new uncertainties concerning the future growth of trade. While the volume and throughput of goods and services trade have continued to grow in the aftermath of the crisis (reaching historic highs in 2017), the value of these flows has declined over the last two years. As a share of GDP, trade has fallen from about 30 percent in 2009 to 2014 to about 27 percent in 2016, and it is not expected to grow in the coming years based on the forecast from the World Trade Organization. These trends and forecasts are raising questions about the future role of trade as an engine of global economic growth.

The long-term future of trade will be shaped by great global changes, including rapid urbanization, the rise of a consuming middle class in emerging economies, geopolitical complexities, and the evolution of international financial flows. However, two trends stand out with respect to the degree of uncertainty surrounding their future impact—these include ongoing technological shifts and a changing international-trade-policy climate.

Changing technologies will continue to have a profound effect on the pace and composition of trade growth. At the moment, while established technologies, such as bar codes and containerization, may have already achieved most of their amplifying potential, a range of relatively new technologies, including 3-D printing, automation, and e-commerce platforms are beginning to come online and promise to have equal, if not greater, transformative effects on trade.

Another key source of uncertainty is the evolving global policy environment. With the Brexit referendum in the United Kingdom and a similar dampening of popular sentiment toward globalization in other Western countries, a clear horizon of ever-growing international integration seems now behind us. Meanwhile, the enthusiasm for deeper trade ties is accelerating in many emerging economies. China and other emerging-market countries are looking to drive ambitious new trade-cooperation initiatives that could “carry the torch” even if the pace of West-driven liberalization efforts decelerates.

Our research assesses the potential impact of these trends on trade and highlights how they can potentially be leveraged for competitive advantage. We examine how the maturation of existing technologies and the potential disruptions of new innovations could affect trade. Then we turn to policy uncertainties where we describe four stylized scenarios for the evolution of regional trade policy liberalization, with analyses of the impact of policy changes at a global and regional level for each of them. Finally, we explore the potential cross-cutting measures and strategies governments can apply to navigate the changing global trade context.

Download Navigating the new realities of global trade, the full report on which this article is based (PDF–1.4MB).

About the author(s)

Tari Ellis is a specialist in McKinsey’s Dubai office, where Yassir Zouaoui is a partner; Alan FitzGerald is a senior expert in the New York office; and Nadia Terfous is a partner in the Geneva office.

The authors wish to thank Joana Carreiro, Jeffrey Condon, and Borko Handjiski for their contributions to this article.
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