Five Key Trade Routes of the Future

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India – China

For many years these two Asian giants barely traded with one another, instead maintaining a cool distance, in the last few years this has changed radically, as India, like the rest of the world has started absorbing Chinese manufactured goods on a huge scale, particularly high value machinery, cars and electronics. In the other direction, India has been sending iron ore, although this has recently slowed to a trickle as the government seeks to direct more ore to its own steel mills. Indian manufacturing is taking off in a big way, just not as spectacularly as its Northern neighbour and if the sub-continent overcomes its energy shortages, infrastructure and educational deficits it could reach a similar level of manufacturing capacity to China and the two countries could have a complementary “equal” trade of goods and services, much like the G3 of the US, Japan and EU.  Then in theory the trade between the two nations could become the central economic pole of the 21st century.

India – Central Asia

Not long ago, the Indian cabinet gave the green light for a new potentially ground breaking project, the Turkmenistan – Afghanistan – Pakistan – Indian (TAPI) pipeline. As the name suggests, it would connect natural gas from the Turkmenistan’s Caspian Sea shoreline to energy hungry India. The on-going war in Afghanistan has held this project up until now, but the withdrawal of US troops and the need for Afghanistan to earn foreign export earnings has reopened the possibility of its construction. The Asian Development Bank is expected to take a lead in financing the construction of the pipeline, but commercial partners are still needed to fill the funding gap.

The pipeline also opens up the possibility of India taking a more active role in Central Asia – an area Russia sees as its own backyard and is increasingly economically dominated by China. India’s energy needs are perhaps the greatest of all the rising powers and it faces a stark choice of importing more expensive dirty coal or looking at alternatives like gas, nuclear and renewables. If the pipeline is successful India will have a greater stake in the Central Asian region and in particular the secretive state of Turkmenistan. Politically a relic from Soviet times, Turkmenistan retains a deeply paranoid mindset, with an intelligence apparatus which spies on foreigners and its own people with impunity. New Delhi looks set be another power jockeying for influence in Central Asia, playing a modern day version of the Great Game – this time a fight for the regions’ energy resources.

Persian Gulf – China

No commodity defines capitalism more than crude oil, and the Gulf region is the cornerstone of its supply and despite the emergence of new sources in Africa and Latin America, countries like Saudi Arabia, Bahrain, Qatar and Kuwait will remain the dominant suppliers of crude for many years to come. At the same time China is emerging as the world’s biggest economy (depending on your measure) and biggest energy user, taking over from the USA’s long standing position as number one. The USA is using new domestic sources such as shale oil and fracking to become increasingly self-sufficient, while China’s demand continues to rise despite investment in measures such as energy efficiency, nuclear power and renewables. The trend is clear, China will become the dominant purchaser of oil from the region, taking over from the USA, who in turn took the place of the UK in 1940/50s. There are massive geo-political ramifications for the region if the US no longer has a strategic interest in the region. Could we see one day a Chinese fleet stationed in Qatar and the PLA stationed in Kuwait?

Brazil – Africa

In the future a resurgent Africa and an increasingly powerful Brazil could create a powerful trade network and a patchwork of political alliances. Brazil will offer a “soft power” alternative to China and India, it is less interested in taking African resources (having plenty of its own), instead bringing its expertise in agriculture and investments in the consumer market, manufacturing and other sectors, enhancing its reputation by remaining removed from the “battles” some predict over African resources. As the country becomes richer, middle class Brazilians will become more interested in their African heritage and will take the opportunity to take holidays in Africa. Brazilian tourists could well become among the most common visitors on African safaris and beaches.

Indonesia – Latin America

If as some commentators predict, Chinese manufacturing becomes increasingly uncompetitive, there are a number of challengers to its throne of “workshop of the world”, although it is difficult to see anyone taking it on for size – apart from maybe India. But there are a number of countries ready to take on the production of low cost textiles, toys, certain electronic goods and other “low tech” manufacturing – Vietnam, Bangladesh and Indonesia all stand out. Of these Indonesia has the greatest potential and could well fill a gap for Latin America, which is an increasingly consumer driven economy with a large demand for these goods. So as China moves up the production scale, a new trans-Pacific trade route could emerge, linking the massive domestic markets of Brazil, Colombia and Argentina, to the production powerhouse of Indonesia.



Categories: Country Investment Analysis, Geo-Economics, Innovation, Kula Ring Trade Blog

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