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Conflict in Ukraine and the Middle East, combined with wider geopolitical tensions made for a challenging 2023 commercial operating environment. 2024 promises much of the same for global trade policy.
Over 50% of the global economy will go to the polls in 2024, with elections (and potentially new governments) in key markets such as the US, India, the UK and EU.
The US Presidential election in November is the most significant – a Trump comeback would probably lead to a return to the heightened trade tensions of his previous term. Trump has doubled down on his ‘America First’ agenda, threatening a 10% unilateral tariff on all imports and new barriers for Chinese exports and investment.
He would also likely restart dormant trade disputes with key allies. The timing of the EU’s recent suspension of its retaliatory tariffs on the legacy Trump steel and aluminium tariffs until March 2025 demonstrates that foreign leaders are starting to plan with Trump in mind.
Upcoming elections in the UK and EU could create an opportunity to improve trading terms with likely new stakeholders on both sides of the channel. A Labour Government would seek to improve relations with the EU but will find it difficult to do so outside of technical, non-politicised issues.
Chinese overcapacity will become a more pressing issue this year given the relatively weak performance of China’s economy and faltering domestic demand. Although the Chinese government has committed to reducing production in sectors such as electric vehicles, its companies will continue to export high volumes of goods at relatively low prices. This is most prominent in the automotive sector, where China has recently become the world’s top exporter.
Countries are increasingly using trade defence measures to counteract this. The EU launched an anti-subsidy investigation into Chinese EVs in October 2023, the outcome of which is due later this year - provisional countervailing duties may come into force as early as Q1. The result of the probe could escalate trade tensions between the EU and China. The UK is likely to launch its own investigation due to EU tariffs increasing the relative attractiveness of the UK market to Chinese EVs, and thus the risk of harm to UK industry.
The EU is also considering investigating other sectors, notably EV batteries, solar panels and wind turbines, with heat pumps and electrolysers also identified as possible areas of concern.
Continued Chinese export of goods produced with carbon-intensive methods, such as steel, will lead more countries to introduce proposals similar to the EU’s Carbon Border Adjustment Mechanism (CBAM).
Countries will continue to use economic and trade measures as part of their trade policy, mostly directed towards China, to protect domestic and national security interests. The US has taken the lead on this with export controls on high-end semiconductors to China, as well as outward investment screening processes for investments into China in certain sectors deemed sensitive, and has pushed allies to do the same.
The EU’s economic security package, released in January 2024, takes a step in the US direction. It includes proposals to strengthen current foreign direct investment screening mechanisms to cover intra-EU investments from non-EU owners. It also includes proposals on outbound investment screening mechanisms and increased coordination on export controls. The UK is considering its own outbound investment screening structures following a commitment to do so under the Atlantic Declaration signed with the US in 2023.
However, there will be debate on the scope of any measures. Governments will prioritise their domestic industries, which may mean that those more reliant on foreign investment are less willing to consider stronger economic security measures. Efforts to include areas such as cloud services or AI in the scope of economic security measures are being contested, and proposals to restrict data flows in the name of national security, which would have impacts on trade, will be divisive.
2024 will also see an increase in supply chain due diligence requirements due to growing green and human rights concerns – a trend that will increase non-compliance risks and potential costs for businesses. The US already has its Uyghur Forced Labour Prevention Act and the EU has ongoing files on corporate sustainability due diligence (CSDDD) and reporting (CSRD), the latter of which will create obligations for businesses this year.
Other measures such as provisional rules on deforestation and proposals on forced labour will restrict certain goods from the EU’s market. Although no countries or commodities will be banned outright, EU importers will need to probe the practices of their third-country suppliers, and monitor any retaliatory response from impacted third countries.
2024 will likely see a domino effect as other countries begin to introduce similar obligations, and existing procedures are expanded to cover more sectors and goods. This will create the possibility of companies being asked to comply with multiple, divergent, data reporting regimes. There is also the risk of uneven implementation of EU measures within the EU between Member States.
Governments are increasingly using political and environmental reasons to limit markets and onshore supply chains as an electoral tool. The US is once again leading this, in particular through the Inflation Reduction Act, which conditions tax breaks on manufacturing being carried out domestically (or by certain allies).
The US can largely ignore multilateral trading rules to do this due to the size of its domestic market, the institutional weaknesses of the World Trade Organisation, and the fact that countries want to avoid trade disputes with it.
Other markets are slowly beginning to follow the US’ lead. The EU’s Net Zero Industry Act provides cover for Member States to grant public contracts to domestic companies based on ‘sustainability and resilience’ requirements. At a local level, France has avoided directly contravening its international obligations by using environmental requirements in its EV subsidy scheme to indirectly grant preferential treatment to domestically manufactured vehicles.
The UK’s ability to flout these rules is limited due to international commitments, including with the EU. However, this hasn’t stopped the UK from trying – in 2022, the EU raised a complaint over perceived local content bias in auctions for offshore wind contracts. A future Labour Government would also pursue policies that create local jobs, likely using environmental grounds as justification.
Geopolitical tensions will continue to impact trade and supply chains. Attacks on commercial shipping lanes in the Red Sea, linked to the conflict in Gaza, are currently causing ships to re-route, increasing delivery time and fuel and insurance costs. The impact is strongest felt in Europe, where companies such as Tesla and Volvo temporarily halted production due to supply chain delays.
Inflation from supply chain delays and/or increased shipping costs will take time to feed through to consumers and is likely to be outweighed by wider disinflationary forces unless the Middle East crisis leads to a spike in energy prices. Companies are generally better prepared for supply chain shocks due to their experiences during Covid - shipping lines have spare capacity and port berths are available, unlike during 2021/2022. Freight rates remain well below the Covid era peaks, but inflationary pressures will increase should the disruption last for an extended period of time.
Disruption in the Taiwan Strait is another potential supply chain flashpoint, with almost half of the world’s container ships passing through it. Although unlikely, a Chinese attack on Taiwan – or blockade of the Strait - would cause significant disruption to global shipping and commodity prices.
The current drought in the Panama Canal also demonstrates that extreme weather, difficult to predict and becoming more common, can have an impact on supply chains. Companies should be aware of the potential for the capacity of varying shocks to reinforce each other – generating significant supply challenges.
Flint’s Trade and Market Access practice has exceptional people in London, Brussels, Amsterdam, Paris, Dublin and across Europe and the Asia-Pacific, able to help clients navigate this increasingly complex global trading environment, steer government policy, overcome regulatory and political barriers to trade, enter new markets and achieve their commercial objectives.
To find out more about how Flint can help you navigate and understand global trade policy, advise on the risks and opportunities of these developments, and support your global investments, get in touch.
This blog was written by Kathryn Watson and Will Haworth. Kathryn is a manager at Flint, she supports clients on policy and political issues in the UK, with a focus on trade, food and drink. Will is a consultant, he advises clients on a range of policy areas with a focus on trade and geopolitics.