Climate Change

Trade Finance, Macro and markets

Has trade had the T-shirt?

December 2019

While economics tells us trade is good for GDP growth, how good is it for the planet? The environmental impact of trade journeys from point of origin to what is often a recycling centre can sometimes be overlooked, says trade economist Dr Rebecca Harding

Trade has an elephant in its room. In all the debate about trade wars and Brexit, the big missing piece of the jigsaw is the future of trade itself. If we acknowledge that trade is increasingly strategic and that it has become a part of national security strategy in the US and beyond1, then why is the discussion about sustainability and sustainable supply chains still in its infancy?

Shipping companies realise that they are fighting a battle with environmental lobbyists to clean up their act. Cargo ships account for between 2 and 3% of emissions pollution2  but overall contribute around 18% to the world’s total pollution levels3. Although tight new regulations imposed by the International Maritime Organisation (IMO) to reduce the sulphur content of fuel oil will come into force during 2020, the issue is not just limited to the boats that account for 90% of the goods that are carried around the world.

Dr Rebecca Harding

Dr Rebecca Harding

CEO Coriolis Technologies

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Rag trade

The challenge for trade professionals is much broader than that. For example, how many times does a used t-shirt cross a border before it finally ends up being recycled for rags to stuff the seats in railway carriages? A senior trade professional told me in passing that he estimated a t-shirt bought for US$4 in a New York supermarket would have been on a ship nine times from its origin in, say, Bangladesh, through its primary sale in the US, to a second-hand clothing merchant in Malaysia, Cambodia or Vietnam and then its final recycling destination in Nigeria. Certainly the trade in second-hand clothing is expanding, and is big business in emerging economies but the environmental cost of this may be catastrophic if current rates of growth are sustained by the largest used clothing exporters (Figure 1).

Figure 1: Exports of used clothing by top 20 largest exporters (annualised growth 2013-2018, %)

coriolis-technologies.jpg

Source: Coriolis Technologies 

The US is the world’s largest exporter of used clothing and is still seeing its exports grow, followed by Germany, France, the Netherlands and South Korea, which make up the world’s top five. Of course, used clothing is not the only supply chain involving transits across borders more times than is strictly necessary. The issue here though is that many of us may well send clothes that we no longer need to clothes banks, while assuming we are helping with recycling rather than adding to unsustainable trade. It is not a panacea.

How many times does a used t-shirt cross a border before it finally ends up being recycled for rags to stuff the seats in railway carriages?

Dr Rebecca Harding

Other pressure points

A few further data points suggest just how difficult it is to ignore the trade impact on the environment: Coriolis Technologies estimates suggest the following worrying patterns:

  • Aviation fuel trade has grown since the global financial crisis in every top-ten exporting country except the UAE. In some countries, like China, it has risen by as much as 9% and Malaysia by nearly 7%. While it would be easy to associate this with rapidly increasing economic development through trade, Portugal, Spain and Poland have among the highest growth rates in aviation fuel in the world at 21%, 13% and 12% respectively since the financial crisis.
  • Mexico now accounts for more than 18% of global truck exports with annualised growth above 10% in the years since the 2008−09 crisis. Again, this could be seen as simply the growth of the Mexican economy, but the world’s largest importers are the US and Canada suggesting that road freight is a growing sector despite its environmental impact.
  • Panama has become the largest importer of cargo ships and while the other major producers of ships, such as Japan, Korea and China are reducing their exports, the shipping hubs (Panama and Singapore) are still growing significantly.
  • Global plastic packaging trade has grown at a rate of just 1% annually since the financial crisis to a value of some US$87bn in 2018. However, the US, as the world’s largest importer has seen its volumes increase at an annualised rate of nearly 4.5%, and while China’s imports have declined, its exports have grown at 3.9% − perhaps both countries should focus on this imbalance with the rest of the world?

 

It would be easy to regard all of this as catastrophic but the data does also offer some good news. For example, one of the most polluting sectors is ferrous metal waste and Coriolis Technologies data suggest that that sector’s trade has fallen back dramatically at an annualised rate of more than 5% since 2012. This is arguably as much to do with more stringent regulations around ferrous metal both on environmental and compliance grounds, but it does show that it is possible to control trade in sectors where question marks may hang over its sustainability.

 

Next steps

This then points to the key next steps for the sector. It is clear that trade has a long way to go but the shipping freight sectors are well aware of the challenges they face and are making changes to regulations accordingly. International bodies like the ICC are now heavily focused on the need to monitor supply chains and ensure that trade finance is working with those that are sustainable rather than those that are not. Ultimately, so much of this will come down to appropriate benchmarks and metrics, but this is a task worth doing if there is still to be a world to trade in 100 years hence.



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