Dubai’s overall export values jumped 8 per cent in 2020, on an annual basis. Image Credit: Supplied

Dubai: Global trade will rebound in 2021 despite the challenges posed by the pandemic, boosted by strong economic growth in US and China, according to DMCC’s Future of Trade 2021 report.

This growth has defied expectations of double-digit annual declines, which had been estimated between 13-32 per cent by the World Trade Organisation (WTO), said the report.

Secondly, Dubai, a major trade hub, saw its foreign trade growth rebound significantly, with the second half of 2020 seeing a 6 per cent year-on-year jump in trade volumes. Dubai’s overall export values jumped 8 per cent in 2020, on an annual basis.

“While global trade has shown its resilience, it is simultaneously in the midst of profound change - technology, changing consumer behaviours, the drive to combat climate change, and geopolitics will all be key contributors to its reshaping in the years ahead,” said Ahmed Bin Sulayem, Executive Chairman and Chief Executive Officer, DMCC.

According to the study, the most transformative element of the global trade outlook is technology. Blockchain, decentralised finance (DeFi) - a blockchain-based form of finance that does not rely on brokerages or banks - and other new and disruptive technologies will further accelerate trade growth. DeFi protocols have seen a considerable amount of funds invested; since the start of 2021 alone, the total value locked into DeFi has tripled from about $20 billion to $60 billion.

“While geopolitics will continue to present challenges and impact the global trading system, the adoption of technology will continue to shape the future of trade,” said Feryal Ahmadi, Chief Operating Officer, DMCC.

“What’s also clear is that blockchain is going mainstream - businesses are recognizing and exploring the revolutionary potential to solve some of the most difficult challenges,” said Ahmadi, during a virtual event.

Protectionism persists

On the geopolitical front, fears of protectionist policies persist and are propelled by ongoing US-China trade tensions, rising economic nationalism, and the widening economic disparity between lower and middle-income economies, said the report.

The EU’s drive to harness a carbon pricing practice, under the anticipated Carbon Border Adjustment Mechanism (CBAM), or “Carbon Pricing”, has been criticised as a form of protectionism, and as such, has the potential to further exacerbate existing geopolitical tensions, it added.

“The findings suggest that while a ‘new age of protectionism’ is a key risk in the wake of the pandemic and increasing discussions around US-China decoupling, outright protectionism will be kept at bay because it is costly, unpredictable, and impacts jobs,” said DMCC.

While there were fears that the pandemic would see sustainability drop down the political and corporate agenda, that has not been the case.

The report noted that China, Japan, the US, South Korea and Canada had announced more aggressive net zero targets, while companies and investors have ramped up their sustainability efforts

Key recommendations to business and government:

  1. To promote a further sustainable trade acceleration, governments must diversify their global trade relationships to foster economic transformation for job-intensive growth, in order to tackle youth unemployment and underemployment during the recovery. Businesses and governments alike must remain agile and innovative to navigate ongoing market volatility and unlock unique opportunities that have emerged from the pandemic.
  2. Businesses should increase investment in digital technologies of the future, to reduce costs and build cross-sector synergies. Firms should elevate the role of research and development to incorporate sustainable practices, some of which will utilise new technology.
  3. Amid rising protectionism, companies should take advantage of and make strategic usage of free trade zones when it comes to agreeing commercial trading contracts. Governments must ensure the full utilisation of macroeconomic and financial tools to promote mutually beneficial trading relationships to avoid falling back on tariffs.