US economic and political outlook

A closer look at the global trade landscape

  • Between 2000 and 2021 there was a threefold increase in the value of global merchandise trade, which reached a record high US$22bn by 2021. Over this 20-year period deepening trade imbalances, rising protectionism and China’s unequal treatment of Chinese and Western companies have resulted in diplomatic rifts. US-China tensions in particular are threatening to up-end international trading networks and the future of globalisation. Meanwhile, trade in other regions has been influenced by external factors, such as commodity price shifts and foreign-exchange rate changes. 
  • The US’s influence in global trade stems from its role as the world’s largest consumer market. Because of its import-focused economy, the US has maintained significant trade deficits for more than 40 years. Nevertheless, between 2000 and 2021 the value of the country’s merchandise exports also rose twofold, reflecting the US’s growing strength as a goods producer. Concerns over the offshoring of many export-oriented industries—notably in “critical sectors”, ranging from technology to pharmaceuticals—over those two decades are increasingly driving US trade and industrial policy. With growing protectionist policies, bipartisan opposition to overseas trade agreements and sustained tariffs on China, we believe that US trade growth will slow in the coming years, resulting in a stable (but still high) trade deficit.
  • Unlike the US, the EU maintains a steady trade surplus. The value of the EU’s merchandise exports and imports with non-EU trading partners rose threefold over 2000‑21. Growing calls for self-reliance and trade disruptions following Russia’s invasion of Ukraine have forced the EU to reconsider its dependency on imported commodities, notably Russian gas. As the region will continue to suffer from an energy crisis until at least 2024, we expect that higher energy prices will have a negative effect on the EU’s production capacity (decreasing exports) and increase the price of imports. Overall, this should result in a lower trade surplus. In the medium term, we expect that the EU will also seek to boost domestic production of critical goods to avoid future supply shocks.
  • Since China joined the World Trade Organisation in 2001, the value of its merchandise trade has surged, resulting in a 29-fold increase in the country’s trade surplus (US$563bn in 2021). This provided an influx in investment that allowed the government to boost spending and support rapid economic growth. China will continue seeking free-trade agreements in the coming years, in a bid to expand its economic and diplomatic clout. However, China’s economy is slowing and trade relations are worsening with the US and other Western countries. These factors pose a challenge for markets that have become heavily dependent on both Chinese supply (of finished goods) and demand (of raw materials). 
  • Latin America’s trade mainly relies on exporting a diverse basket of commodities, exposing the region to volatility in global commodities prices. Following the global financial crisis in 2008, the region’s currencies depreciated against the US dollar owing to political and policy uncertainty, resulting in outflows of capital and a reduction in foreign direct investment. Subsequently, the value of imports rose faster than the value of exports, raising trade deficits. Amid aggressive tightening by major Western central banks, we expect Latin America’s currencies to remain subdued against the US dollar in 2022-26. Currency depreciation will counteract the recent uptick in commodity exports, and we expect that the region will sustain a trade deficit during this period.
  • The Middle East’s trade balance closely mirrors movements in global energy prices. Dated Brent Blend crude oil prices reached a record high of US$112/barrel on average in 2012, the same year that the region’s global trade balance reached a historic high of US$576bn. In 2016, when oil prices reached a low of US$44/b, the region recorded a rare trade deficit of US$45bn. We believe that Russia’s invasion of Ukraine will keep energy prices high until at least 2026. As a result, we expect Middle Eastern countries to record comfortable trade surpluses that will fuel greater domestic investment over that period. In the longer term, however, the region will face challenges as many economies gradually turn away from fossil fuels in a bid to reduce carbon dioxide emissions.

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