So close, no matter how far – redefining international trade norms

The contemporary macroeconomic turbulence, accompanied by mutually reinforced geopolitical crises and yet evolving global pandemics, generate a measurable disturbance for international trade. The effect of such can be seen both on the supply and demand sides of cross-border trade. Consequently, the forecasting and planning of trade activities and related risks have become even more essential to ensure the set targets are optimally met.

Looking closely at the current figures in the global economies, we can see that the possibilities and risks are unevenly distributed among the countries and industries. Danske Bank anticipates inflation to decelerate in 2023, stabilising itself around 5% in the Euro area and 4% in the US, as a result of determined central bank action. Despite the partly offsetting fiscal policies that will support households and businesses particularly in Europe, big economies are heading into a recession. The pace and extent of potential recovery remain open questions. Noteworthy is the euro losing ground against the dollar, a phenomenon we expect to continue in the coming years. The dollar is anticipated to stay strong, supported by the overall economic outperformance in the US. This generates prominent competitive value for Finnish and European exporters.

Even as inflation is a global phenomenon, low and middle-income countries face a more acute cost of living crisis, sometimes exacerbated by domestic policies. As an example, Türkiye and Argentina struggle with more than 80% inflation rates today. In this light, the mediating effect between tightened financial conditions and higher financing costs is found to be evident, especially in emerging markets.  This will substantially increase the vulnerability in such countries and impact the purchasing power of the consumers and industries overall, forcing the companies to reconsider their trade patterns. Concurrently, specific disinflationary impacts on the business can be seen, which can be illustrated by the expected development of the commodity prices and logistical expenses. They are, easing the cost pressures and enabling more favourable terms for the cross-border trade for Finnish companies to execute.

Securing the trade and gaining a competitive advantage

Despite the overall economic expectations, the potential of geopolitical uncertainties will remain the most significant challenge for the export and import companies to deal with. In addition, the attitude towards international trade order, behaviour and norms seem to be evolving. Certain countries appear to be willing to change their position from rule-taker to rule-maker, China being a showcase example. In the pattern of shaking the customary rules and regulations, there emerges a compelling reason to argue that redefining the rules can be seen as a tactical manoeuvre to adjust the regulatory framework to benefit the country’s strategic objectives in global trade.

 Another way to approach this is to establish new meanings to the existing norms. In either case, it is advisable to follow the course of action in this field. To this end, the International Chamber of Commerce in Finland and its stakeholders, such as corporates, banks and other interest groups, participate actively in the discussions to maintain and develop an understanding of the dominant factors mediating international trade. For countries like Finland, it is essential to be able to influence the decision-making related to the trading norms from the outset to secure and yet to improve our leverage in the highly competitive international market.

To distinguish the prevailing circumstances and downturn from the previous ones, the finance executives are now in a much better position to navigate and see through the fog of recession. This is thanks to improved data analytics, availability of information and seamless cooperation between the whole supply chain. Confidence can be born by understanding that all downturns are ultimately temporary by nature. As the financial conditions vary from market to market, careful planning with the financiers, i.e. the banks, can visualise the opportunities and the most secure and suitable trading methods to match each demand. The continuous aim is to build a sustainable and safe agreement between the trading partners and the interest groups involved, from supply to delivery. To this end, let’s find the most optimal ways to tackle the risks and achieve added value by increasing competitiveness through the global value chain!

Jukka Kuusala
Head of Trade Finance Finland
Danske Bank