From Brexit to Global Trade Fragmentation: Wolfgang Lehmacher Explains

[00:00:03] Speaker A: Wolfgang, widen this out. We've been speaking for actually quite a long time now, many, many years. And I did look back through some of our old interviews. After Brexit, you told me companies had shifted from strategy to contingency mode. So now with tariffs and new trade rules, are customs processes keeping up or are they simply creating bigger choke points? Or I guess maybe what I'm saying is, is what we're seeing develop now is this Brexit on a far larger scale. [00:00:32] Speaker B: One could see that we have seen with Brexit that delays at the border can be a disaster for supply chains, for supply in the country. So the, the disruption risk is pretty high currently. I'm quite surprised that we don't see or hear more noise around this. So still it seems to work somehow. This is a problem solving industry and the contingency mode I think is now the standard. Everybody needs to see what they can do in volatile times. And again, what I hear from the people I'm talking to is that first they feel comfortable with what they have put in place. But on the other hand, somebody said it very clearly. We have production almost all over Asia. We thought we were diversified and safe. We are absolutely not. And what helps them in this specific case was he said, luckily we have a very good digital twin and can run models all the time and can upload new tariffs when they come out. Which gives us a good foundation for the right moves based on the modeling and the recommendations. [00:01:58] Speaker A: Wolfgang, how would you describe or characterize this new world? Are we moving from WTO multilateralism to maybe a spaghetti bowl of bilateral and regional trade deals? And in your view, is this fragmentation permanent or can a new rules based system be rebuilt at some point down the line? [00:02:20] Speaker B: We have seen this already for a while. This is not due to the tariffs. We have seen a lot of bilateral agreements, we have seen a weakening of the WTO for many years. So this is all not new. We could end up in an opposite situation. When you see the MPIA, which is the arbitration mechanism where 56 WTO members come together and say this is a tested mechanism, we don't care whether WTO functions and can do the job, we just agree that we respect the rules which shows that you can put mechanisms in place without the institutions, which is in fact a very interesting development, instead of waiting for a revival of the wto, you need a critical mass of trading partners which you could brand on the friend shoring. It's like minded people that agree we trade under certain rules, so but currently we have a lot of diversity in that landscape. [00:03:29] Speaker A: We've we talked before we came on air about India's Modi going to see Xi over in China timing very nicely with these new tariffs on India seemingly pushing China and India to some sort of rapprochement because they've been at loggerheads for most of the last sort of decade. So this is quite a breakthrough. Are we seeing the rest of the world start to look for alternatives whether they're geopolitical or trading alternatives that almost cut out the US Whether it's new trade deals or it's regional alliances or it's brics or whatever? What's your view on that? [00:04:04] Speaker B: WOLFGANG I first think that nobody wants to bypass the US but with the current situation one has to consider what is happening and we see this aggressive surge of Chinese companies for new markets for new possibilities. So it's not a conscious bypassing. It is just accepting realities and trading more with people that make it easier for them. So that's my take on this.