Global Trade Trends And Budget Initiatives

The Budget signals a move towards a more open trade policy, but further broadening and deepening are essential

- AMITA BATRA

The Budget announcement last week of a reduction in some Customs duties and the simplification of rules for the utilisation of free trade agreements (FTAs) are positive trade policy measures. It is important that this momentum be maintained and the promised review of tariff rates in the next six months lead to an overall reduction of the average applied most favoured nation (MFN) tariffs, especially on manufacturing sector inputs. This would be useful in navigating a global trade context that is becoming increasingly nuanced. Recent updates from the UN Trade and Development or UNCTAD (July 2024) and the World Trade Organization (April 2024) highlight the emerging global trade trends with the following standing out.

First and foremost, global trade has been resilient despite the many shocks emanating from the pandemic, the ongoing Russia-Ukraine and IsraelHamas wars, politically motivated trade instruments such as the Inflation Reduction Act (IRA) and Carbon Border Adjustment Mechanism (CBAM), and the US-China tariff and technology competition. While undoubtedly these events have led to fluctuations in the rate of growth, the dips have been short-lived. The rebound in 2021 following the sharp fall in 2020 in the immediate aftermath of Covid was quick and sustained, leading to a record high level of trade growth in 2022. Rising geopolitical tensions marked a decline again in early 2023, but trade growth picked up in the final quarter, though with variations across regions and countries. The first-quarter trends of 2024 have been positive for both trade in goods and services, continuing the modest increase of the second half of 2023. The upward trend is expected to be sustained over the next year, given the moderation in global inflationary trends and the consequent rise in real incomes and demand for manufactured goods. However, a plateauing of the growth in trade in services is indicated.