That the global trading system is changing is indicated by the latest statement from the G7. The communique from the Finance Ministers and Central Bank Governors committee of the ‘Group of 7’ economies, released on 22nd May, included the passage that they were “concerned” over the state of the world economy and, in particular, what they described as “unsustainable global macro imbalances”.
The statement elaborated that there was a continuing need for a “common understanding of how non-market policies and practices (NMPPs) aggravate imbalances, contribute to overcapacity, and impact the economic security of other countries” and that the organisation should strive to “assess the distortions they cause in markets and their global spillovers”. In a quite aggressive sentence, the committee said it had agreed on the “importance of a level playing field” and wanted to take “a broadly coordinated approach to address the harm caused by those who do not abide by the same rules and lack transparency”.
Statements from organisations such as the G7 are rarely explicit, however, this one is unusually strong. The comment around the “harm caused by those who do not abide by the same rules” seems to be a direct criticism of China and its economic policies. However, the wider statement seems to be a general criticism of trade surpluses. This is all reflective of US policies in the area of tariffs and trade.
If the G7 economies were to actually act on the concerns they have articulated, the patterns of trade would change hugely. Even leaving aside China, the balance of trade across the Atlantic would shift under such policies, with the huge physical trade surpluses of Germany moving to either equilibrium or deficits. The impact of such changes would be very great for logistics markets across Europe. The probability is that many sea-freight, air-freight and possibly road freight sectors would find themselves with too much capacity. If there was a move to rebalance trade-flows around the world, such impacts would be seen in many regions. The implications for the logistics sector would be very significant.
Even with a statement as strong as this one from the G7, the immanence of trade re-balancing should not be exaggerated. A country such as Germany has been criticised for its trade surpluses for several decades, yet has been able to evade action against it. However, the tolerance of nations running trade deficits has reduced and this means that patterns of freight movement are likely to change. The implications for the global market for logistics services are profound, with the growth trajectories of many market segments likely to change in both the short and the long-term.
Author: Thomas Cullen
Source: Ti Insight
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