McKinsey: A new trade paradigm: How shifts in trade corridors could affect business

Trade routes face high variability in growth under different scenarios, with one-third of global trade potentially exposed to volatility by 2035, a new Mckinsey report says.

At glance:

• The global trade system is in flux. Since 2017, economies have traded less with geopolitically distant partners. Recent announcements on tariffs, trade, and industrial policy have deepened uncertainty.
• Trade will grow by $12 trillion by 2035 in a baseline scenario. The trade increase would boost today’s global trade value by about 35 percent, to $45 trillion. In a diversification scenario (in which companies seek new sources of supply), about $1 trillion of that growth might not be realized. In a fragmentation scenario (in which geopolitically distant economies trade less), about $3 trillion of it could be lost. 
• Depending on the scenario, over 30 percent of global trade in 2035 could swing from one trade corridor to another. That swing is the sum of the differences between the highest and lowest corridor-level values across the scenarios we examine. Fragmentation, pushed by heightened tariff levels, could drive the largest shifts, especially in critical sectors.
• Trade corridors between emerging economies could be among the safest bets. Of today’s 50 largest corridors, 16 would grow strongly, even in a fragmentation scenario, while nine corridors—primarily linking advanced economies to China and Russia—would shrink sharply. The rest fall somewhere in the middle.
• Trade in electronics could see the biggest shifts, followed by textiles and machinery.These manufacturing value chains bridge geopolitically distant economies, so they’re more susceptible than others to fragmentation. Resources across energy and mining could see substantial downstream effects. 
• Businesses can get ahead of changing trade dynamics. By understanding potential scenarios and then establishing value creation theses to guide actions, firms can drive strategic and organizational changes to capture new opportunities, as well as to buffer against a downside.

Read the report: Click here

Source:McKinsey