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Tracking global trade: protectionism begins to bite

The war in Ukraine and lockdowns in China continued to reverberate through global supply chains through Q2. A new and worrying rise in trade protectionism could exacerbate those pressures for longer.

The chart below helps paint a picture of which regions faced the most pressure, showing how the war in Ukraine and new lockdowns in China are influencing the ebb and flow of global goods.

“Russian imports fell by 39.6% - reflective of sanctions against the country, while exports grew 18.1%, driven by higher oil & gas prices.”

Import growth was concentrated in advanced economies, especially EU, US, and UK, while the imports of emerging economies contracted sharply (-4.7%) – with China (-12%) and Eastern European CIS countries (-16.4%) witnessing the largest slowdowns. 

 

Export and import growth in March 2022

Sources: CPB Netherlands, NatWest Markets. Last quarter = Q4-2021; Pre-Covid = Q4-2019.

 

Global shipping pressures continue easing

On the other hand, global shipping costs retreated at an impressive rate across nearly all Asian outbound trade routes, continuing their fall from their historic heights reached in September 2021. The drop in China-Europe shipping costs was likely linked to seasonality, a shortfall in available exports and the impact of higher inflation on European consumer demand. Meanwhile, ongoing Covid-related closures and associated delays were driving down the China-North American shipping freight rates.

Global shipping costs continued easing across most routes

Sources: Freightos Baltic Container Freight Index, NatWest Markets. Index: Jan-2020=100.

 

How will rising export restrictions and port congestion affect global supply chains?

In the months ahead, global trade looks likely to continue grappling with the broad-based impact of the war in Ukraine and a covid resurgence in China. We see two main themes weighing heavily on supply chains in the months ahead.

Rising food protectionism: Since the Russian invasion of Ukraine, export curbs have spread globally, adding to food-inflation pressures, and marking another setback for free trade. The number of countries imposing export restrictions on food has gone up from 3 to 23 since March, and by the end of May included 45 separate measures. Governments have been limiting food exports (via actual bans, export licences and taxes) to provide some relief to the local masses from rising prices and to maintain domestic supplies. Russia has for example banned the sale of sugar, sunflower oil, and grains. Indonesia, which produces more than 50% of the world’s palm oil, has stopped its outgoing shipments. India has restricted wheat, with possible additional bans on sugar and rice.

More pressure on shipping to come: We took a closer look at the percentage of global container ship cargo capacity tied up and unable to be loaded or unloaded due to port congestion in sea areas up to 500 kms from major ports worldwide. The data shows a considerable rise in container ships waiting off Shanghai and neighbouring Ningbo-Zhoushan (the world’s third-largest port). Those levels are not as severe as what was seen during the Wuhan lockdown (in early 2020). But they have crossed levels witnessed during Yantian in Shenzhen (in June 2021) and are seemingly approaching the levels during the Ningbo closures in August last year (which sent shipping prices much higher).

Given what’s been said, it’s perhaps unsurprising that we’ve seen supply chain pressures intensify in the Euro area, UK, and China – as our Regional Supply Chain Index (RSCI) below shows.

 

RSCI: Supply chain pressures intensify in the Euro area, China, and the UK

Sources: National sources, NatWest Markets. Note: Numbers indicate standard deviations away from the mean. Green shows improvement. Red shows intensification of pressures.

 

Looking ahead, rising trade protectionism in response to the war in Ukraine – and the pressures on supply chains that they bring – could conceivably last as long as the conflict continues. Similarly, rising congestion at Chinese ports could lead to higher prices despite a continued easing of covid restrictions. Both pressures underscore the growing (and ensuring) importance of supply diversification, supply chain resilience, and end-to-end supply chain transparency.

 

Get in touch

To learn more about the implications of global supply chain pressures for your financial strategy, speak with your NatWest representative or get in touch with us by clicking here.

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the NatWest Group Economics Department, as of this date and are subject to change without notice.

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