Major changes in world trade on the way

Protectionism is an enemy of world trade. There is one more thing: precautionism. Countries that raise their walls to protect their own inhabitants against possible (health) risks from outside.

Look what is already happening inside the walls: in Boerenbusiness it was recently read that for safety reasons, agriculture minister Carola Schouten wants pig and poultry slaughterhouses to reduce their production speed in slaughterhouses. Or take her German colleague Julia Klöckner; who wants the price of meat to go up. This would strengthen the personnel policy so that corona outbreaks at slaughterhouses can be prevented. The government that responds to business models to protect land and inhabitants from a health and economic perspective.

International trade
It is clear that governments are also focusing on foreign producers. Former director-general of the World Trade Organization (WTO) and former European Commissioner for Trade Pascal Lamy recently warned in NRC about obstacles that await international trade; countries that are introducing new laws as a precaution, not only to protect health but also to strengthen vulnerable production chains for certain essential products.

Where do we get our products from? Where do we get them made? Around the corner or on the other side of the world? Global supply chains will change. A minimum stock was still a strength six months ago, but corona has turned it into a weakness. The supply of goods and services was suddenly no longer a matter of course. The reliance on Asian suppliers was painfully apparent with the shortage of face masks. Western countries will partly reduce this dependence. Especially for essential products. It also raises the question of national sovereignty of key industries.

Production back home
Within industries, a process of re-localization will begin. Products and production are sought closer to home. But close also means more expensive (higher production and personnel costs). The question is whether the consumer is prepared to pay a higher price. Euler Hermes expects a return of low-skilled jobs in Europe. Unemployment will fall, wages will rise and so will inflation.

World trade and exchanges will decline sharply. As a result, stock markets and cash flows change. New financial products will be launched. Borders will be less open and import duties will increase. Companies will have to adapt their geographic activities. Logistics and health will increasingly be seen as strategic sectors and protected as such by countries.

At the moment our production chains are still set up for 'just in time'. According to Lamy, we are going to 'just in case'. Countries' own resilience will increasingly prove itself as an obstacle in world trade.

Johan Geroms

Johan Geeroms is Risk Director at Euler Hermes, the world market leader in credit insurance and corporate debt collection. In his blogs, Geeroms often focuses on developments in the agricultural sector.

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