Continuing Covid impact: while much of the world (and probably all Talking Trade readers) seem eager to put the Covid-19 pandemic in the rear-view mirror, the virus is likely to continue to affect trade in Asia for much of 2023. Disruptions will be caused by individuals that are continuing to get sick and are unable to report for work. Fluctuating staffing levels can make it difficult for companies to deliver goods and services on time as intended. These delays will continue to reverberate across the region and create continuing headaches for supply chain managers, particularly in the first half of the year. As with the earlier waves of Covid, government reactions and responses to potentially rising infection levels are also important. While complete border shutdowns may be a thing of the past, governments have shown a new willingness to make rapid adjustments to policies that can catch firms by surprise.

Inflation and recession worries: The jury remains out on whether inflationary pressures are going to sharply or modestly moderate in the near term, but there is a growing consensus that several major economies are still poised for recession. Given the importance of key markets in the US and Europe to most Asian economies, even a mild recession in either can be quite damaging. Inflation and rising interest rates are also posing new challenges to domestic firms and consumers.

Uncertain supply and demand: Firms in Asia are also grappling with continuing uncertainty about the supply and demand for goods and services in the near term. Many of the economic patterns developed during covid, such as working from home or extensive shopping online, will change in 2023. But the “new normal” is also unlikely to snap back to pre-covid times. This leaves firms and supply chain managers facing a set of forecasts that are probably obsolete and few clear answers on what sorts of supply and demand pressures might be most relevant now. High levels of uncertainty make it all too easy for firms to over or undershoot expectations, leading to mountains of unsold inventory, staffing levels which are not right sized, or an inability to deliver at volumes.

Geopolitical tensions: Geopolitical tensions, especially between the United States and China, have bedeviled firms working across Asia for the past few years. The US-China trade war, largely defined by significant tariff increases that had implications for companies in the region, has not gone away. Tariffs are likely to remain high. For the year ahead, the focus will likely be shifting to new restrictions on certain technologies and products, investment flows into and out of China, growing application of rules on forced labor across different sectors, and stronger enforcement of existing regulations. The tariff war highlighted how policy decisions aimed at solving one problem can affect firms all over the region in unexpected ways.

Supply chain reshuffling: The trade war followed by covid led many to project massive supply chain reshuffling across the region. Firms would recognize that operating simultaneously in China and the US, especially, was increasingly difficult to manage and would adjust their existing footprints. Despite breathless articles and endless discussions, most firms did not move. However, 2023 is likely to mark the start of limited supply chain restructuring in the region. Many firms have recognized vulnerabilities in their existing structures of all sorts, including geopolitical tensions, government policymaking at home and abroad, and risks of other types of disruption such as natural disasters or labor unrest. Companies that have spent much of the covid period drawing up plans for adjustments should be ready to act, although the economic headwinds by slowing economic growth in key markets is likely to keep many changes limited.

China reopening: After three years of being closed, China’s economy is suddenly reopening. The next few weeks are likely to be dominated by the continuing, rapid spread of Covid-19 infections across the country. As workers fall ill, companies will struggle to deliver goods and services. But, assuming no new unexpectedly dangerous variants emerge, China should be set for a significant surge in economic activity by the latter half of the year. As other locations have shown, the so-called “revenge” spending reflecting pent-up demand from domestic consumers could be an important driver for economic growth.

New trade deals: While some parts of the world have pulled back from using trade as an engine of growth, Asian governments continue to remain bullish on the importance of economic interdependence as a pathway to prosperity. Governments are continuing to negotiate and sign a wide range of bilateral and regional trade agreements and to expand existing economic architecture. The Regional Comprehensive Economic Partnership (RCEP) now has 13 active members, as Indonesia became a party on January 2. Accession talks to join the 10 member Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) should accelerate, with the United Kingdom in the final stages and five additional candidates waiting to begin. Many of the latest trade agreements in Asia provide significant benefits for companies, including tariff-free trade for many or most products, new opportunities for trade in services and investment, and a host of other commitments.

What’s not on this list of 2023 trade predictions? The conflict in Ukraine, rising energy prices, and climate change/sustainability are less immediately important or noted across Asia.

Longer term problems have not disappeared. An increasing number of countries in Asia face rapid increases in their elderly populations along with declining population numbers overall. Education prospects and health care services are quite uneven. Poverty remains a significant issue across the region, with many facing increasingly precarious economic conditions after a long period of covid disruption and now rising inflationary pressures at home.

The picture is not all doom and gloom. Asian trade and growth opportunities need to be viewed relative to other regions. With much of the rest of the world facing even sharper, faster slowing growth, most of Asia will continue to show positive growth at levels broadly consistent to 2022. The region remains dynamic and supportive of trade. Disruption always brings about opportunities as well as challenges.