Trade Winds: The $68.5 trillion future of global commerce

by Debra D'Agostino

HSBC's latest report, Trade Winds: shaping the future of international business, predicts that world trade will quadruple in value to reach $68.5 trillion by 2050. That's almost four times the value of global exports today. The report and its forecasts are underpinned by research and analysis from Oxford Economics.

So what will the trading landscape look like in 2050, and what will drive its growth? Some important data points from the research:

• There will be almost 3 billion new members of the middle class by 2050, most of whom will live in emerging markets. This will lead to significant shifts in trade patterns. 

• As a result, Asia-Pacific’s share of global exports is expected to rise from around a third in 2015 to 46% in 2050. Western Europe’s share, meanwhile, will shrink from 34% to 22%.

• The economies of North America and Western Europe will struggle to expand merchandise exports by 2% a year between 2025 and 2050. But economic growth in these markets will still be significant—even if the Eurozone grows by just over 1% a year during 2020-50, it will still be 40% larger by 2050.

The four trade winds identified in the report—continued industrialization, the plummeting cost of logistics and communications, the evolution of company operating models and liberalization of trade policy—will continue to critically support global trade growth through 2050. Key developments include: 

The rapid adoption of sophisticated technology. This includes the Internet of Things (IoT), driven by massive migration to the cloud and mobile computing. Among other developments, IoT is allowing traditional manufacturers to create a "services layer" on top of their products, leading to significant growth. For example, Ingersoll Rand has shifted from selling air conditioners under its Trane subsidiary to managing climate control systems, creating a new, ongoing revenue stream. Big data analytics, meanwhile, will create new insights into customer needs and preferences, and drive successful endeavors in reverse engineering and mass customization of products. 3-D printing could have significant implications for the supply chain and the factory of the future, which will be "small and flexible rather than large and rigid, and located closer to the end customer," says Graeme Philp, CEO of GAMBICA (the UK Trade Association for the Automation, Instrumentation and Control Laboratory Technology Industries). 

Improvements in infrastructure, including the rebuilding of the Panama and Suez Canals, along with new airports (China is expected to build 17 new runways by 2036, for example), wider shipping lanes and better technology to manage logistics in real-time.

The rise of micro-multinationals. In the future, networks will play a critical role in market competition. In a 2013 study of 2,100 small and mid-size businesses around the world conducted by Oxford Economics and SAP, more than half of respondents said that global innovation and growth would come as a result of their participation in online business networks and platforms. "Digital platforms are overcoming many costs which previously held SMEs back from trading small goods internationally," says Joshua Meltzer, Senior Fellow, Global Economy and development at the

Brookings Institute. These micro-multinationals will form tightly woven networks to compete against larger firms.

Continued openness to global trade. “We now live in a world which is fairly hard-wired through trade, investment and economic integration agreements," says Ricardo Melendez-Ortiz, Chief Executive of the International Centre for Trade & Sustainable Development (ICTSD). "Over 160 countries, all the major economies in the world now observe multilateral trade rules, and use the trading system to conduct their trade relations." As we note in the report, countries that are open to international trade grow and flourish more quickly than those with closed economies. Open trade policies promote trade flows by opening up markets to international competition and reducing transaction costs. This paves the path for international trade and has a significant impact on the prosperity of nations.