UHY GLOBAL MAY 2021 FEATURE


GLOBAL TRADE RESET


Has the pandemic fundamentally changed the principle and practice of trade or should we expect business as usual, with all its flaws? Some argue that without globalisation there would be no coronavirus, and that the pre-eminence of international trade and travel is the architect of its own downfall. Others see the pandemic as a turning point, a catalyst for a more equitable, sustainable globalisation. Meanwhile, trade tensions and popular unrest continue to shift the basics of global relationships, redefining both threat and opportunity. So, as we look towards a recovery, can a safer, fairer, and greener renewal take place, or will everything revert to the status quo? Early signs are mixed. LEARNING FROM THE PAST Many have likened the opportunity for change presented by the coronavirus pandemic to the immediate post Second World War recovery, a time of significant investment, change and new blueprints for peace and security through economic co-operation and social rebuilding. But perhaps a more sobering comparison is with the global financial crash of 2008, which saw free


market economics in freefall and governments across the world scrabbling to keep the boat afloat. The world then, as now, needed to address climate and biodiversity change, and poverty, as well as the state of global healthcare and risk preparedness. Planning and implementing the 2008 recovery was an opportunity to address these issues – but the opportunity was missed. Instead, governments dug in and appeared to bail out the few at the expense of the many, committing to the preservation of financial systems and a faith in market forces to restore economies, largely at the expense of people and communities who suffered most from the fallout. It was not enough to prevent a global recession, since when most developed


and many developing countries have seen sluggish growth. It also served to exacerbate the underlying problems, inequalities and increasingly underfunded public sector infrastructures. As a consequence, too many governments were cruelly exposed by the pandemic. Developing nations are more vulnerable, already nursing high levels of debt and poor healthcare. On top of all that, environmental stress has emerged over the last decade as probably the pre-eminent global challenge. COVID CROSSROADS It is hard to imagine that global trade is not at a crossroads. After a year of Covid restrictions that have impacted lives, livelihoods and liberties, and produced the deepest global recession since post-war records began, the way out is still uncertain. Having to put people before profits has sent a shockwave through the global economy. As a result, decades of prudent financial management have been turned upside down (in some countries more significantly than in others) and governments have borrowed trillions of dollars to fund domestic aid packages, to keep people and businesses from


collapse, and to stimulate economic recovery. Unlike post-war regeneration, pandemic-hit nations have turned inwards to protect themselves and their economies. It is understandable but does not address a global crisis with a global solution. Initial 'vaccine nationalism' typified the me-first approach from many countries, before a more equitable distribution model was created, recognising that global vaccination is a prerequisite for global recovery. According to the United Nations Conference on Trade and Development (UNCTAD), governments need to recognise that expansionary fiscal measures need not be confined to emergency response, and that ongoing investment will be critical to global recovery. In its Trade and


Development Report 2020, From global pandemic to prosperity for all: avoiding another lost decade, UNCTAD asserts that “Our main concern remains a misplaced optimism in the rules, practices and policies of the hyper globalized economy.” In other words, returning to the old ways will be a return to pre-existing problems. The world needs to step up to the challenge – and a global reset has to be part of the deal. Nevertheless, some finance ministers are already talking up debt reduction initiatives – cuts to public services, increased taxation – even while their citizens and businesses are struggling with a second or third wave of the virus. The danger, as UNCTAD sees it, is premature fiscal tightening and a return to the same market-driven economics as before. It would solve nothing and be another opportunity missed. A RACE TO THE TOP What nations do next has rarely carried more significance for the future wellbeing of the global family. In the United States, a new administration under President Joe Biden has shown positive early signs of grasping, not missing, the post-


pandemic opportunity. On his first day in office Biden signed the papers to bring the US back into the Paris Agreement on climate change, and the country is now formally readmitted, sending a strong signal of intent. What is more, the Senate has approved a massive USD 1.9 trillion stimulus package to aid US recovery. Like many other countries struggling under Covid in 2020, ongoing crisis response saw spending that was not entirely environmentally friendly, with large sums shoring up beleaguered sectors such as oil and minerals extraction. But the US package and Biden’s intentions going forward are a cause for optimism. An early boost to consumer spending is anticipated, much of it likely to result in the purchase of imported


goods. China will be a beneficiary and – despite lingering tensions over the current trade imbalance between the two superpowers – a resurgence in both economies is good news globally, the US and China between them accounting for c.40% of global GDP. Importantly, the US administration wants to boost renewable energy with substantial investment over the next ten years, starting now. Targets of net zero emissions by 2050 and a zero carbon grid by 2035 are ambitious, given the country’s relationship with fossil fuels, but a big step in the right direction. With both China and the US vying for economic and technological leadership, a ‘race to the top’ on green spending for jobs and infrastructure would encourage everyone. EXISTING TENSIONS Unfortunately, the coronavirus pandemic has only served to exacerbate many of the geopolitical tensions that have been impacting trading relations around the world before and during the crisis, and this reinforces high barriers to a collaborative and swift recovery for all nations. It remains to be seen how the Chinese and US administrations in


particular manage their relationship over the next crucial months and years. 2021 has already seen a sanctions-led response frommajor players and others, to alleged human rights breaches. Meanwhile the complex challenges of Middle Eastern nuclear diplomacy, border issues between India and China, massive social unrest in much of Latin America, East Africa’s internecine conflicts, a potential power vacuum in the European Union (EU) with Germany’s Angela Merkel stepping down this year, and the burgeoning threat of cyber hostility everywhere – all of this will continue to occupy policymakers and populations as countries struggle to reboot trade and development. In Europe the United Kingdom, Europe’s second largest


economy in 2019 (with a GDP of USD 2.8 trillion, according to World Bank statistics), left the EU single market and customs union on December 31st 2020. For both parties, the full impact on trade is unclear, and Covid lockdowns (now in a third wave in many European countries) only muddy the waters. Geopolitical tensions present a further challenge to the UK government, which must meet the needs of a restless Union. Scotland’s ongoing call for independence, and Northern Ireland’s dissatisfaction with a sea border between itself and the rest of the UK as a result of Brexit, are major obstacles to a collaborative strategy for recovery, green or not. However, despite all of the world’s tensions, early signs of economic recovery in 2021 at a global level are more positive than many had anticipated. The OECD Economic Outlook, Interim Report March 2021, for example, predicts a global GDP growth of 5.6% for this year, up a full percentage point from the December forecast, and more than most analysts had predicted as the pandemic stopped everything in its tracks during 2020.


ON THE GROUND DIRECTION At a microeconomic level, there is a lot that can be done to help steer recovery in a more sustainable direction. Greta Thunberg’s determination to shame the developed world governments into action over climate, would be an extreme example, but business has a critical role to play too. Given that there is an international regulatory commitment to tackle corporate issues like tax evasion and profit shifting, then leaders and stakeholders on the ground might also want to consider putting their weight behind environmentally beneficial investment programmes, better corporate governance, greener pensions and more purposeful corporate social responsibility. BlackRock, Inc. in New York, US, is the


world’s largest investment and asset management company, with USD 8.67 trillion in assets under management (as of January 2021). In his 2021 letter to CEOs, the BlackRock Chairman Larry Fink provided an upbeat perspective on sustainable stocks, and the accelerating movement of investors into environmentally sound assets. An advocate of the belief that climate risk is investment risk, Fink’s message for business is clear. “Companies with a well-articulated long-term strategy, and a clear plan to address the transition to net zero, will distinguish themselves with their stakeholders – with customers, policymakers, employees and shareholders – by inspiring confidence that they can navigate this global transformation,” he says. With the tilting of capital into climate-secure investment, more nations pledging net zero carbon targets and an increasing realisation by business that a genuine commitment to the principles and practice of environmental, social and corporate governance is the path to a brighter future, then there are reasons to be optimistic. Global scientists working together on


finding a vaccine delivered a truly astonishing result. Now governments and business must do the same. MAKING IT ADD UP Global accountancy networks like UHY will have an increasingly important role to play in business sustainability, because their member firms are uniquely placed to turn rhetoric into action. The profession’s representative body in the UK – and increasingly internationally – the ICAEW (Institute of Chartered Accountants in England and Wales), talks of regeneration with ‘a triple bottom line’. Profit. People. Planet. It is a neat truth. Throughout 2020, UHY member firms have been supporting their clients through the worst of the pandemic, not only by delivering engagements on time and without compromise,


but also by helping them navigate and benefit from the myriad Covid compensation schemes offered by many governments across the world: grants, loans, tax breaks, furlough and other labour support programmes, restart funds, filing deadline extensions and so on. Taking care of the profit and the people. Soon, professional advisors will step up again, knowing that the triple bottom line includes the planet. Environmental, social and corporate governance (ESG) is fast becoming a watchword for boards, shareholders and capital markets. Brands know this, and today’s consumers are smart enough to know the difference between lip service and genuine commitment. An essential component of the deal will be a company’s non- financial reporting of its environmental, social, diversity and other measures. UHY accountants have the detailed knowledge, process experience and expertise with data that can inform clients’ strategic thinking, and help them embrace a post-pandemic future that really is safer, fairer and greener. For more information about UHY’s capabilities, email the UHY


executive office, info@uhy.com, or visit www.uhy.com


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