By: Jeff Gaus
This is the first in a 4-part Series: Trade
I make it my business to study stressors and accelerators of supply chain health across all industries—from rockets to rieslings. In this series, I’ll attempt to paint a possible future you will have to navigate and outline pathways that can make your journey smoother and more profitable.
Global trade sits at the heart of geopolitics. America’s GDP of $29.4 Trillion dollars represents 25.9% of global GDP as of 2024 and represents the single greatest consumption market on the planet. The world is more dependent on the US than it is on the rest of the world.
US exports of $2.3T represent less than 7% of total GDP; changes in global markets have limited effect on the US economy. However, the US’ $3.2T of imports represent very material exports to the economies of: Mexico (83%), Canada (77%), UK (22%), Japan (19%), South Korea (19%), EU (19%), China (17%), and Australia (4%).
This past year brought no-confidence votes or the collapse of governments in: UK, Germany, France, Japan, South Korea, Canada, Argentina; most recently, Syria’s dictator was overthrown. There’s more to come.
The world is being reordered. The rules are being rewritten. It will be messy.
The US demonstrated over the last 12 years, it WILL flex its trade muscles to advance its interests, perspectives, and values. Control of the global financial system and THE reserve currency allows the US to impose sanctions that can be inconvenient, uncomfortable, or punitive to other countries and their interests. Because the US created, protected, and enforced the “world order”, it believes it has the right to enforce its will on the rest of the world. Not all countries agree; the BRIC countries’ attempt to establish new currencies and financial systems is an example.
Meantime, the incoming administration has signaled its intentions in terms of trade policy. Called “transactional diplomacy” by commentator pundits, this policy intends to advance the economic interests of the United States. The US will negotiate and trade with its trading partners, allies, and friends. It will trade according to the rule of law – contract law. The US will use its power to protect its interests and property. And, the US expects “consideration” in exchange for access to: markets, technology, intellectual property, financial system(s), and protection. “Nobody rides for free” applies.
The US will lessen its dependence on problematic supply chains including China, Russia, and the Middle East. The US will negotiate Trade Agreements, establish and invest in supply chains that include: Mexico, Canada, Japan, South Korea, Australia, India, and the Philippines. NAFTA-2 will likely be replaced by a new Americas Free Trade Agreement (AFTA) which will include the countries bordering the Caribbean Sea. Japan, Korea, Australia, India, and the Philippines will likely be included in a future security pact supported by a bi-lateral trade agreement. The US will attract foreign direct investment (FDI) as part of these trade deals, the US and its companies will create FDI in other countries as new global supply chains are designed and built.
The pandemic taught us: supply chains behave exactly as they are designed and incented. To achieve different outcomes, designs and incentives must change. To navigate these changes, you need complete visibility into your entire supply chain. If you don’t have this today, PCN can help you do this with security and reliability.
Up next: Tariffs.
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