Key trends to shape the future of trade

Against a challenging backdrop of high inflation, economic slowdown, and geopolitical conflicts, trade is expected to grow gradually. Despite a 1.2% contraction in merchandise trade volume in 2023, the WTO predicts a modest rebound with a growth of 2.6% in 2024 and 3.3% in 2025, mirroring similar projections for global GDP.

Shift to Regionalization

The COVID-19 pandemic altered the world in many ways, one of which was the reversal of globalization we’ve seen in decades. As globalization becomes less prevalent, regionalization will be driven further by geopolitical factors, which could further fragment the world into West-East and North-South trade blocs. This new era of multilateralism will see the emergence of new trade blocs and corridors in Asia and North America.

Over the next few years, there will be an increase in friendshoring – where supply chain networks are focused on countries regarded as political and economic allies. Meanwhile, bilateral and multilateral trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Regional Comprehensive Economic Partnership (RCEP) and African Continental Free Trade Area (AfCFTA) will strengthen inter-regional trade corridors. These would play a crucial role in promoting regionalization by reducing trade barriers, harmonizing regulations, improving infrastructure and connectivity, fostering economic cooperation, strengthening institutional frameworks, and enhancing cultural and social ties within the region.

Fast-growing emerging markets that are pursuing non-aligned strategies will benefit from increased trade in the multipolar landscape. Emerging markets like Mexico, Vietnam and India are positioning themselves as alternative sources of production to China, in particular for manufacturing goods, and seeing companies shift supply chain segments to their markets. In the Middle East, countries like the UAE and Saudi Arabia are capitalizing on their status as a relatively neutral political arbiter and their central geographical position as well as a trade facilitator between East and West and the Global South.

Supply chain restructuring

As a consequence of regionalization, corporations are prioritizing resilience over cost savings and efficiencies in their supply chains. They will de-risk their logistics networks by moving production out of areas affected by conflict, protectionism, and climate change. This may result in longer shipping routes and elevated costs but favour reliability and security.

Meanwhile, potential escalation of trade tensions between the US and China will lead to a gap in global trade. Many emerging markets have filled in the gap as alternative sources of production for goods. This can create benefits to global supply chains and trade in the long term, especially as bystander countries have boosted their exports to the US and the rest of the world, while their exports to China have remained largely unaffected. Countries like Vietnam, Thailand, South Korea and Mexico have surfaced as major export beneficiaries in this shift to alternative centres to Chinese exports.

Widespread AI adoption

Artificial intelligence (AI) is set to overtake blockchain to be the most disruptive technology for businesses and revolutionize trade in the future. This will herald a paradigm shift in the operating environment, as businesses embrace the ability to optimize supply chains, enhance efficiency and reduce costs through predictive analytics, drive data-driven market insights to capture new business opportunities, and use AI-powered trade finance solutions to streamline transactions.

AI holds a transformative power which is capable of influencing what is traded, how, and at what cost. The dawn of AI heralds a new era of digitally driven trade, fuelled by advancements in blockchain, big data, and additive manufacturing across sectors. While the potential is vast, concerns remain in shaping appropriate regulations amidst diverging rules on data flows and harmonization.

Implications for Vietnam

Asian supply chains are undergoing major structural changes, a number of which favour the shift to ASEAN. As Asia’s supply chains evolve, this has led to the rise of new locations in the region’s supply chain landscape. Countries that had historically been central to Asia’s supply chains, namely China, South Korea and Japan, are being joined by new players. Vietnam, for instance, has emerged as a significant manufacturing and export hub, especially in electronics. Attracted by the country’s competitive labour costs and relatively stable political environment, companies such as Samsung and Intel have made significant investments. Samsung alone accounted for approximately 20% of Vietnam’s total exports in 2023, making Vietnam a crucial node in the global electronics supply chain.

Over the next few years, it is unlikely that we will witness a reduction in trade, but rather a shift in where trade takes place. This reconfiguration of global supply chains, driven by a combination of economic and geopolitical factors, offers multinational corporations opportunities to reinforce and optimize their logistics networks. It also represents a significant potential for Vietnam.

The future of trade is exciting as new trends and patterns evolve. Companies are looking at adopting smarter trade which would drive global economic growth and social progress.