Economists have already forecast that a recession is underway in 2023 with record high inflation rates. Despite this, global trade shows a beam of light with a slower but steady growth rate, according to the World Trade Organization.
The aftermath of COVID-19 and the Russia-Ukraine war possess uncertainty. However, positive predictions about international trade can reduce inflation and increase economic growth.
The surprising resilience of international trade was also seen in a report published by DHL and NYU that showed positive growth in the sector even after multiple shocks in the past few years. While the entire world buckles up for a possible recession and strict monetary policy in the upcoming years, international trade brings hope against all the odds.
Despite the positivity around this sector, there are some key factors that have caused hindrances in global trade on a broader scale and have the potential to create further obstacles as we move forward. 
After two back-to-back hits on the economies from disease to war, there has been a massive economic shock wave creating an increase in the fuel price and supply chain disruption, directly impacting global trade and stagnating the growth by the quarter of 2022. Due to the acceleration of globalization, the recent crisis has impacted multiple sectors, unlike past recessions, where the shocks were somewhat isolated. The two sectors that have directly influenced international trade to slow down were the fuel and supply chain crises.
Russia being one of the biggest energy providers supplying about 14% of crude oil, has influenced multiple sectors. While comparing the effect with that of the 2008 recession, we see that the recent shock has influenced all sorts of fuels which is forcing European countries to look for energy alternatives. On top of that, geopolitical issues and a ban on Russia have furthered threatened the energy crisis.
This sudden shock accelerated as the war prolonged, and the heat affected countries around the world, especially developing and manufacturing exporter countries such as Mexico, Vietnam, Thailand, etc. According to an IMF study, fuel-importing low-income countries see a $60 billion hike in the energy bill that is equivalent to 3.2% of their GDP.
As energy remains the primary source from production to food, there seem to be three ripple effects from this soaring energy price hike –
< further increase in global inflation rate affecting 100% of the advanced and 87% of the developing economies;
< accelerating political unrest and food shortages impacting billions of people;
< possessing negative or stagnated global growth.
The surge in fuel price led to an increase in production, transportation, and manufacturing cost, disrupting the flow of raw materials. China’s repeated COVID-19 response and labour shortage worsened the logistics sector, which was already struggling after the pandemic. Ever since the pandemic occurred, the supply chain crisis has been referred to as a bottleneck due to having very little supply to meet huge consumer demand. However, during the pandemic, there was a labor shortage because of the lockdown. It was quickly filled up as it began to slow down, and the economy was recovering faster.
The spillover impact from the ongoing war has blocked some of the most important routes from Asia to Europe and created an unusual price hike in 5 different ways, including commodities. Food shortage is one of the most alarming consequences of the war, as Russia and Ukraine are the prime sources of wheat for the world. Although Ukraine has been opening up and using alternative routes, the delay in the process and lack of capacity are increasing the scarcity of food in a world that is already at risk of food shortage due to climate change.
However, the hindrance in global trade has another influence that is beyond numbers and statistics. Unlike the most recent recession in 2008, this time, the crisis is being fueled by geopolitical issues. Even before the war occurred, we saw a rise in income inequality, climate change, social division, and unrest due to industrialization, technological advancement, wealth accumulation, and political desensitization towards many issues. The war, on top of all these, has increased the risk of geopolitical fragmentation. If we compare the 2009 recession, we see cooperation and willingness among countries to overcome the financial crisis. However, the recent war, ban on Russia, and China’s reluctance have lessened the chances of cooperation which is crucial in terms of battling a high inflation rate.
While calling this the end of globalization might be an extreme prediction, some experts think we can expect the international trade market to be divided into different trade blocs with an alike political goal and need. We can already see this prediction becoming true as Indian Prime Minister Narendra Modi called on regional leaders for “reliable, resilient, and diversified supply chains” in the region at the Shanghai Cooperation Organisation (SCO) summit. The SCO bloc has decided to expand trade in their national currencies as well as create alternative trade routes across the region. Such a decision will create further transaction costs for firms & production and further slow down the trade market. This idea of creating a shorter and more reliable supply chain to push for a regionalized economy was planted right after COVID-19 when countries felt the consequence of depending on congested routes. Later the idea was nurtured by some allies to fulfil their economic and political advantages. Trade blocs or alternative trade routes can be strategic opportunities for some regions, such as south Asia and Africa, as it takes the huge demand off some major countries. However, experts have also expressed their concerns about geopolitical fragmentation because of its potential to cause complex and dangerous political chaos.
The analysis of the crises reveals that the solution to these major reforms and uncertainty around international trade depends on the broader scale decisions, such as the government’s responses and economic policies, than on the micro-level decisions taken by business owners and supply chain managers. According to the IMF, the solution lies in shaping our economic policies in four ways.
< To create a resilient, strong trade system, companies and countries need to make diverse products and create diversified export and import, which has the potential to cut GDP loss.
< Economic policies should focus on creating shorter and stronger supply chains.
< International organizations can help create transparent trade policies and reformed debt frameworks to help vulnerable countries. Enhancing business environments and creating an easier and safer payment system will encourage firms to stay in the market despite the strict monetary policy and high inflation rate.
Instead of creating financial blocs to avoid sanctions, creating a transparent and easier payment system will improve economic growth. Political decisions and economic policies should concern the business owners as well. They might have to reshape their policies and decision according to different trade blocs’ proposals. Both the government and business owners should capitalize on opportunities to create maximum return on their investment. That also includes being flexible enough to fit into a deeply divided world.
From a political point of view, countries should reconsider their inclination toward the unilateral trading system and its probable damage to the overall economy. According to the former WTO deputy director general, as the three major economies slow down, there is no financial growth without multilateral cooperation and reconnecting with a divided world. He also brings examples from the 2008 recession and points out how cooperation and a friendly mentality among G-20 countries helped the major economies recover from one of the most crucial financial crises and create well-informed economic policies. In a post-pandemic world in the 21st century, defragmentation and economic integration should be the way forward to create a sustainable crisis-resilient world.
Author- Afrina Asad
