How Global Tension Influences Trade Economics
USA, the EU and China are prioritising new trade policies which leads to dramatic shifts in global trade economics.
Supply chains that have been optimised for cost and speed are being disrupted by new regulations and tariffs.
The European Union places an emphasis on reducing dependency. The focus of the EU will be on integrating trade with set climate goals. But the Union wants to stay open for new alliances at the same time.
Joana Hill, Deputy Director General of the World Trade Organization, put it this way: “There are many areas where I take trade as a part of the solution. That doesn’t take away that we are in a moment of great difficulty. We are seeing the first signs of trade fragmentation in two broad geopolitical blocs.”
This divide in blocs will force businesses to rethink their trade relationships and supply chain strategy across borders. This is especially true if they want to stay compliant with sustainability goals.
New Tariffs on the Horizon
Tariffs are now a critical tool of trade policy. The EU’s new tariffs on Chinese electric vehicles, aimed at countering what European leaders view as state-sponsored market distortions, come to mind (up to 35.3% on imports of battery electric vehicles). The new Trump administration discusses new tariffs for key trading partners like Canada, China and the EU. Although no decisions have been made yet, any threats by the US administration could be implemented soon.
Businesses clearly need to be adaptable with planning their supply chains. It’s a good idea to use strategic scenario planning with different options to navigate the shifting tariff policies.
The EU is taking proactive steps to bolster its autonomy. European Commission President Ursula von der Leyen recently emphasized the need to address the “China shock” caused by export subsidies and overcapacity. Although she clearly stated that the EU is committed to open markets and partnerships across the globe, it is clear that the EU wants to become more self-reliant.
Constant new regulations raise the bar for compliance tasks and produce new administrative burdens on businesses. Compliance technology and automation will help businesses to stay agile and react accordingly.
More Challenges
Geographic diversification alone is not as easy anymore. The stability of emerging trade corridors and political risk become important factors for businesses thinking about their supply chains and international relations.
Digital trade will become a center point of regulatory changes in the near future. Rules for data processing, AI and more will make international trade increasingly complex. Businesses will likely be forced to invest in region-specific digital infrastructure or risk losing market share.
Not all products are affected equally by geopolitical shifts. The geoeconomic impact is already on the level of individual product lines. Products involving critical technologies or national security concerns are under severe scrutiny. Certain high-tech components, such as advanced semiconductors, are already subject to stringent trade controls, while other consumer products face fewer barriers. A product-specific strategy allows businesses to remain agile, mitigating risks while maintaining broader market access.
Navigating Challenges with Confidence
The future of global trade is uncertain as countries shift their trade policies in response to global tensions. Businesses need to adapt and look for insights as well as digital solutions to navigate compliance and supply chain challenges in a more fractious yet digitally connected world.
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