How is the war in Ukraine affecting global trade and international supply chains?

Only a few months ago, international trade experts were hopeful that the worst of the pandemic’s supply-chain issues were over and that some stability could be restored to the international trade system in 2022. Following Russia’s invasion of the Ukraine, however, the dominos of supply-chain havoc began tumbling once again, this time intertwined with issues involving national security, political alliances, energy sustainability, climate change, nationalism, inflation, and the limits of globalization.

Rem Korteweg is a senior research fellow and head of strategic initiatives at the Clingendael Institute in the Netherlands. Every year, he joins forces with other international trade experts to discuss trade issues in a series of podcasts sponsored by BritishAmerican Business (BAB) and financial and insurance giant AIG.

The theme of this year’s BAB/AIG Global Trade series is “global trade in a complex and contested world,” comprising 10 podcasts between now and November — and Korteweg is the first to admit that this year’s conversations will be less optimistic than expected. “We are generally in a rather gloomy phase of international trade policy,” Korteweg said during the first event of the series, the BAB/AIG Annual Trade and Geopolitics Update: Conflict, Climate, and Recovery, aired on April 5.

“This year, I think our conversations will be bookended by what is happening in Ukraine,” Korteweg says, “and the shockwaves it is sending across the global trade system.”

A new sense of urgency

In addition to disrupting energy markets and supply chains for everything from wheat and fertilizer to semiconductors and auto parts, sanctions against Russia have brought “a new sense of urgency” to energy security and geopolitics, Korteweg says, and have once again focused the attention of corporate leaders on issues of supply-chain risk.

China’s alliance with Russia is a looming concern for many manufacturers, of course, as is the refusal of most nations in Africa, Asia, and Latin America to participate in NATO’s efforts to confront Russian aggression with economic sanctions. When it comes to trade policy, however, “national security appears to be taking precedence over the pursuit of a level international playing field, at least in Western Europe,” Korteweg explains. “This is raising fundamental questions about the nature of globalization, which is leading to a conversation about how trade can or cannot — or should or should not — be a means to pursue national security.”

Further, framing the conflict as a larger global struggle between autocracies and democracies may not work in democracy’s favor, he warns, since so many of the West’s essential trading partners in Asia, Africa, Latin America, and the Middle East are not, in fact, democracies.

A few bright spots

Not everything is gloom and doom in the world of international trade, fortunately. The war in the Ukraine has clarified the need for more supply-chain cooperation between nations, for example, and the United States and the United Kingdom have begun a series of discussions on the “Future of Atlantic Trade,” following last year’s announcement by US President Joe Biden and the UK Prime Minister Boris Johnson of a new “Atlantic Charter.” The first of those “dialogues” took place in Baltimore in March, and another is scheduled for later in April.

According to Jennifer Hillman, Professor of Practice at the Georgetown University Law Center and a panelist on the podcast, the talks between the US and UK were intended to shore up relationships among the two countries and Europe, as well as reinforce an overall commitment to building more durable supply chains, protect worker’s rights, decarbonize the economy, and continue building the framework and infrastructure needed to support effective digital trade practices.

“There is nothing in these dialogues to suggest much likelihood that they’re going to be leading to a bilateral free-trade agreement between the US and the UK,” Hillman says. “That’s off the table,” she insists, in keeping with the Biden administration’s position that it will not be considering new free trade agreements anytime soon.

Uncertainty in the boardroom

In the private sector, however, there is a great deal of concern about the successive waves of uncertainty caused over the past few years by trade wars, the pandemic, the Suez Canal crisis, Brexit, climate change — and now, fallout from the war in Ukraine. And according to panelist Simon Evenett, a professor of International Trade and Economic Development at Switzerland’s University of St. Gallen, many senior executives he has talked to are “seriously overwhelmed by the uncertainty of the moment and are really looking for a way forward.”

Evenett explains that with any one of those events, you could tell corporate executives that it is a one-off and that normal service will be restored soon. “But after so many of these, boards are now going to be asking, What shoe is going to drop next? And where is the assurance of certainty in the operation of supply chains? This must begin to color how companies organize themselves regionally and globally,” says Evenett, adding that some companies are already “de-coupling” from China, restructuring their supply chains, and in some cases moving their manufacturing facilities closer to home.

In the midst of all this turmoil, there is also an ongoing discussion in trade circles about whether the World Trade Organization (WTO) should be saved or scrapped. The panelists for this BAB/AIG discussion say they favor keeping the WTO, but with significant reforms to make it more relevant for meeting today’s trade challenges. “The WTO isn’t over, but it needs to change what it does,” says Evenett.

Georgetown’s Hillman agrees. “There’s a huge role for the WTO to play as a leveler, as a source of transparency, as a base case for rules, and as a forum for dialogue around these issues,” she says. “My own view is let’s all pick up our oars and figure out how to save the WTO, because it is an institution that needs to be saved.”