Defender of global trade stability

China is a strong defender of global trade stability, countering destabilizing forces with support for global mechanisms and innovative domestic policies.

The nearshoring and friendshoring led by the United States have become a greater threat to global trade when combined with trade protectionist policies, often based on tariffs and unilateral sanctions imposed outside of global trade agreements.

The political weaponization of trade relationships and the consequent potential for trade instability have accelerated in recent weeks and added urgency to the quest for ways to stabilize the operation of global trade and ensure that trade settlement can be achieved without interference. Imposing tariffs is not conducive to these objectives. Only global cooperation and expanding international platforms can enable and enhance global trade.

Speaking at the second China International Supply Chain Expo held in Beijing recently, Vice-President Han Zheng said that China stands ready to work with other countries to build an open world economic system, and ensure stable and unimpeded global industrial and supply chains.

At a high level, these open trade mechanisms include APEC, the G20, the World Trade Organization, the Regional Comprehensive Economic Partnership and other trade agreements operating within the framework that supports global trade. China's support for these global free trade objectives is very important and it stands in contrast to the policies implemented by the US and its like-minded allies.

At an operational level, the challenges are more practical and solutions increasingly rest on the productivity gains and cost reductions that flow from the increased digitalization of logistics chains. China is committed to clearing these obstacles, particularly through the advanced application of technologies for both the domestic economy and the global trade economy.

In terms of China's domestic situation, there is still relatively large room to lower social logistics costs. Three main features of the planning in this area involve highlighting areas of reform and innovation: clearing bottlenecks, systematic planning and promotion efforts. These policy initiatives will help China reduce its per unit logistics cost by 6.3 percent in three years by improving logistics efficiencies in its domestic market and by boosting offshore competitiveness despite the increase in protectionist trade policies elsewhere.

Efficiency improvements in port storage facilities are required to service exports of electric vehicles, lithium batteries and solar panels. The plan also targets reforms in the rail and road freight sectors, calling for an open logistics data sharing mechanism across transport and customs departments. Achieving these objectives relies on advancing digital transformations by making better use of technologies such as big data, 5G, and the Beidou Satellite Navigation System.

In terms of the international situation, gaining the same efficiencies in the global trade environment starts with maintaining the stability of global supply chains. The challenges confronting businesses worldwide include escalating costs, geopolitical tensions and rising protectionism.

China can address chokepoints in international logistics and enhance the security of international supply chain logistics.

Often these chokepoints are created by poor supply chain scheduling combined with archaic customs and border clearance processes. This type of process productivity is an underrated area when it comes to tackling cost reduction and supply chain efficiency.

The adoption of distributed ledger technologies is a key element in process efficiency achieved by the effective digitalization of supply chains.

Hand in hand with digital efficiencies in the logistics of the supply chain comes the requirement for smooth settlement of international trade obligations. Global trade stability is undermined and settlement risk increases, when the SWIFT trade settlement system is weaponized in the pursuit of political objectives.

The foundation of global trade stability is the ability to settle trade in a currency of choice. Historically, this has often been the US dollar and this has enabled the recent manipulation of the cross-border trade settlement system to reflect political objectives.

In response to this risk, an increasing number of countries are exploring alternative currency settlement methods, particularly now that the petrodollar link has been broken. Global trade stability is improved when countries are able to settle trade in a currency of their choice.

The speed of alternative trade settlement mechanisms supported by new fintech technologies reduces counterparty risk and the risk of adverse currency movement by shortening the trade settlement period from days to minutes.

Recently, US president-elect Donald Trump threatened to impose 100 percent tariffs on BRICS countries — which include China and Russia — that do not use the dollar as their reserve currency. This is an open attack on global trade stability.

It may also have the unintended consequence of undermining the US economy. In retaliation, some countries may choose to stop buying the US debt treasuries that currently fund the extravagant US lifestyle based on accessing never-ending debt. The result of unfunded debt is hyperinflation which further undermines global trade stability.

Against this backdrop, maintaining the stability of global supply chains seems even more essential for businesses worldwide, and it rests on three pillars.

The first pillar is to implement efficiencies in the domestic market logistic and supply chains. The second is to apply digitalization efficiencies to global supply chains to ensure stability and security. The third pillar is to support smooth and rapid trade settlement achieved through the use of enhanced non-dollar solutions which do not rest exclusively on the use of the US dollar.

The US dollar enjoys the exorbitant privilege of being the major reserve currency, but that privilege has been widely abused by using sanctions and manipulation of the exchange mechanisms in recent years.

China has pioneered the development of central bank digital currencies. These will reshape global payments by reducing transaction costs and providing an alternative to the dominance of the US dollar in international trade settlement.

All in all, China is a leading supporter of an open world economy which enhances global trade and rejects protectionism.

The author is an international financial technical analysis expert and a former national board member of the Australia China Business Council. The author contributed this article to China Watch, a think tank powered by China Daily.

The views don't necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.