Global trade is likely to improve in 2020 as US, China prepare to sign phase one deal, business leaders say
Global trade is likely to recover somewhat this year following a tumultuous 2019, which was marked by an escalating trade war between the United States and China, according to William Fung Kwok-lun, chairman of global supply chain manager Li & Fung.
Speaking on a trade finance panel at the Asian Financial Forum on Monday, Fung said he was optimistic about this year because "we couldn't have a more horrible year than last year" and there was increasing clarity about the relationship between the world's two largest economies following a phase one trade deal between the countries, which is expected to be signed this week.
Confirmed: China to make huge purchases of US goods as part of trade deal
"In my 40-year career in global trade, I have not seen a moment in time other than when China entered the world in 1979, where there's more disruption to the existing trade flows," Fung said. "I would say we are in an environment of rewiring all of the supply chains."
The US and China have been locked in a trade war for 18 months, with US President Donald Trump aggressively using tariffs to try to force Beijing to change decades of industrial and trade policies. China has responded with its own tariffs.
The uncertainty about trade policies and rising protectionism around the globe has led companies to delay investment and shift some production out of China in hopes of avoiding a tariff hit. However, optimism was growing that some of that uncertainty will be removed as China and the US prepare to sign their deal this week.
Fung said the rewiring of the global supply chain had shifted production out of China to Southeast Asia, South Asia and Africa, creating a US$1 trillion opportunity for trade finance.
Bill Winters, chief executive of Standard Chartered bank, said the shifting geopolitical landscape was forcing companies across a variety of sectors to contemplate hedges to deal with uncertainty in trade.
The US-China trade tensions over the past year have raised the possibility "sector by sector that conventional or historic supply providers will not be available", Winters said. "That provides challenges to people in all parts of the supply chain."
Trade war deal will not fix US-China tensions, ex-Fed chair Yellen says
At the same time, Fung, the Li & Fung chairman, said there remained a gap in the availability of financing for trade. He said the gap stemmed from increased capital requirements for banks under Basel III rules, which were adopted following the global financial crisis to improve the banking sector's ability to weather times of financial stress.
The rules have made trade financing more expensive for end users, and harder for banks to lend for trade, Fung said.
"Trade finance, I feel, is less risky. It's shorter term. It's very different from normal lending," he added. "Global trade is good for the world and I think that should be addressed."
Bill Winters, chief executive of Standard Chartered bank, at the Asian Financial Forum in Hong Kong on Monday. Photo: Bloomberg alt=Bill Winters, chief executive of Standard Chartered bank, at the Asian Financial Forum in Hong Kong on Monday. Photo: Bloomberg
Winters, the Standard Chartered CEO, said banks were facing relentless pressures on margins when it comes to trade finance, but also capital requirements have made it much more expensive to hold trade finance assets, particularly those classified as high-risk.
The US state caught between China and the White House
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.
