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A High Level Of Uncertainty: What Can We Expect For International Trade

5 Minute Read
Written by Kirk Cheesman
14 November 2018

Throughout 2018 the international trade environment has been volatile to say the least. Whether this instability will have any substantial effect is yet to be seen, however, the uncertainty around trade and potential tariff increases is very much of current concern.

As threats abound regarding trading tariffs there is a related drop in confidence among businesses and consumers. When dealing internationally, there should be increased attention put to surrounding trade, especially in specific countries and industries that are affected by these changes in risk.

Tariffs have been widely talked about as China and the US, the exports of which account for USD$2.2 and USD$1.5 trillion[1] respectively, lock horns over the US’s attempts to protect its domestic producers. In the short term, it is unlikely that we would see an overall drop in trade, however, due to a forecasted reduction in GDP growth in 2019, the global economy may be set to slow. The escalating threat of tariffs is damaging to confidence and world trade in general.

Of course, those trading internationally, will want to know whether these tariffs and barriers will increase their risk of non-payment. While this would not necessarily be the case, it creates uncertainty in the market.  What will undoubtedly have an impact on payment ability are fluctuations in foreign exchange rates. A reduction in the value of a country’s currency means traders will face increased difficulties when importing and selling in the local market.

“Tariffs have been widely talked about as China and the US, the exports of which account for USD$2.2 and USD$1.5 trillion respectively”

During 2018, Turkey’s currency has dropped by 40%. A reduction such as this has an immediate effect with imported goods becoming much more expensive than local alternatives. This reduction in currency value can result in a slowing of economic activity for a country such as Turkey, a hard thing to reverse and leading to an increased risk of non-payment.

In terms of the domestic market, these international trade barriers will probably not have much of an impact in the short term but the reduction in business and consumer confidence can be draining.

Specific sectors that have been impacted recently are steel and electronics. Steel has fallen foul of a global drop in demand leading to a decrease in price. Consumer electronics distributors traditionally find their sales strongly tied to movements in the housing market and a slowdown in house sales will almost certainly affect high street retailers already having to deal with increased on-line competition from the likes of Amazon. More globally, Samsung has warned of a slowdown in sales of smartphones, a warning widely supported by analysts reporting that last year ended with the first ever year on year quarterly decline in sales[2].

Australia has for some years relied on its trading relationship with China to insulate it from, otherwise, global declines in trade, yet China’s growth is continuing to slow., Retail sales in China rose by just 8.5 per cent year on year in May, its slowest rate since 2003”[3], this will clearly have a flow on effect for many traders and importers to the country and long-term sustainability cannot be ignored.

So, what to look out for and consider when trading internationally?

  • Know who you are dealing with (even check long-term customers have not changed structures)
  • Consider the macro and long-term events but know what can immediately affect your business
  • Look for alternate growth opportunities
  • Without the right protection, remain risk averse

Consider talking to a professional for advice prior to exporting

[1] https://www.statista.com/statistics/264623/leading-export-countries-worldwide/
[2] https://www.crn.com.au/news/samsungs-quarterly-revenue-expected-to-drop-as-smartphone-sales-slow-down-497390
[3] https://www.scmp.com/news/china/economy/article/2150814/chinas-economy-cools-may-beijings-efforts-reduce-debt-levels

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