The Development Of Global Barter Trade – Analysis

By He Yan

Amid shifts in the geopolitical landscape and U.S. financial sanctions, several countries and regions are increasingly turning to barter trade for cross-border transactions.

The Ural customs in Russia recently signed its first barter contract with a Chinese company. This transaction was conducted without cash, relying solely on the exchange of equivalent goods.

There have been successful examples of barter trade between China and other countries in the past. In 2019, China executed a palm oil trade worth nearly USD 150 million with Malaysia, exchanging it for construction services, natural resource products, and civilian equipment. In 2021, a Chinese company exported USD 2 million in automotive parts to Iran in return for an equivalent value in pistachios. These instances highlight the growing significance of barter trade as a viable option in cross-border commerce.

The origins of barter trade can be traced back to the late stages of primitive society. During this period, with the production of surplus goods and the further development of the social division of labor, exchanges of items began to occur both within and between clans and tribes, thus the emergence of the primitive form of barter trade.

In ancient China, barter trade also held significant importance. For instance, during the Han Dynasty, barter trade along the Silk Road facilitated the exchange of Chinese silk and silk products for local specialties such as precious furs and fine horses from Central Asia, West Asia, and even Europe. From around the 1950s, modern barter trade began to appear in the United States and gradually gained traction in countries like Canada and Australia. It became an important means of reducing cash transactions, boosting sales, minimizing inventory buildup, expanding new customer bases, and entering new markets.

By the 1990s, advancements in internet technology further propelled the development of modern barter trade through the integration of e-commerce. Statistics indicate that 20% to 30% of world trade is conducted through barter. Among the Fortune 500 companies, 80% have established barter departments, and approximately 470,000 companies in the UK actively engage in barter trade. By 2016, contemporary barter trade accounted for 30% of the total global import and export value.

The period before the COVID-19 pandemic marked a phase of rapid growth for China’s cross-border barter trade under the Belt and Road Initiative (BRI). The escalation of the pandemic, alongside regional geopolitical conflicts, had severely disrupted global supply chain stability, negatively impacting production and consumption processes and hindering economic recovery. Cross-border barter trade emerged as a means to safeguard material supplies and mitigate supply chain risks.

For instance, due to economic sanctions imposed by the U.S. and other countries, Russia’s traditional foreign trade channels were disrupted. In response, its Ministry of Finance allowed its domestic companies to engage in cross-border barter trade to ensure stable supplies within the country. Additionally, under the economic sanctions led by the U.S., Pakistani companies engaging in financial transactions with Russia faced penalties, resulting in significant difficulties for Pakistan in acquiring essential production materials. To address these issues, in June 2023, Pakistan announced a barter trade agreement with Russia, Iran, Afghanistan, and other countries to import products such as crude oil, liquefied natural gas, liquefied petroleum gas, wheat, and steel. This move partially circumvented the economic sanctions and ensured the stability of domestic supplies. Similarly, due to fluctuations in international crude oil prices caused by the Ukraine crisis, the Philippines faced considerable pressure on oil imports. Public sentiment in the Philippines called for the revival of barter trade among ASEAN countries to secure stable oil supplies from nations like Malaysia. Therefore, considering the practical needs of relevant countries, the development of cross-border barter trade is both necessary and urgent.

The development of the global economy today is marked by deglobalization, regionalization, and even fragmentation. Previously, many believed that the era of global economic integration was crucial for the growth of barter trade, as friendly relations between countries and cooperation among global economies fostered a conducive environment for barter transactions. However, in light of the changes in the international economic and trade system, the deepening of trade barriers, and the challenges facing regional financial transactions, barter trade has emerged as a powerful avenue for cross-border trade.

On one hand, barter trade can alleviate or even resolve issues of cash shortages and excess inventory for businesses. In recent years, various industries have faced significant economic challenges, with small and medium-sized enterprises being particularly affected. Problems such as inventory buildup and tight cash flow have become obstacles to business development, which can be addressed through barter platforms. These platforms aggregate supply and demand information from both domestic and international markets, helping businesses find suitable matches for their needs and resources. The core principle of barter trade is to “exchange what one has for what is needed”. This allows companies to trade surplus goods for necessary materials, reducing inventory accumulation and reliance on cash flow. In our contemporary world, barter trade leverages the internet to integrate resources, effectively addressing issues of poor information flow and overcoming the conventional constraints of time and geography.

On the other hand, barter trade can serve as a temporary solution for economies under sanctions. Direct barter transactions simplify the currency exchange process, mitigate the risks associated with exchange rate fluctuations, and helps alleviate material shortages, improve resource allocation efficiency, and enhance living standards. For example, the impact of the COVID-19 pandemic forced Sri Lanka’s tourism industry which was an important source of foreign exchange revenue of the country, to come to a halt. Insufficient foreign exchange reserves prevented Sri Lanka from continuing to purchase crude oil, leading to the shutdown of domestic refineries in 2021 and causing significant difficulties for the public. Additionally, the shortage of foreign exchange reserves hindered Sri Lanka’s ability to repay a USD 250 million oil debt owed to Iran since 2012. On the Iranian side, U.S. sanctions that included tea severely reduced its tea import volumes, resulting in tight supplies of related domestic products. Consequently, the two countries signed a “Tea-for-Oil” barter trade agreement in 2021, stipulating that starting in 2023, Sri Lanka would trade Ceylon tea with Iran to settle its oil debts. This initiative alleviated the economic challenges faced by both sides and achieved a mutually beneficial outcome.

In fact, barter trade also has certain limitations, including value assessment, demand matching, and credit risk, among others. Nevertheless, it reflects the willingness of emerging market countries to seek diversified cooperation and collectively face challenges amid changes in the global economic landscape. While the dollar-dominated financial system remains large and stable, it is also true that an increasing number of countries are pursuing diversified trade settlement methods. Therefore, there is potential for the global trading system to become fairer and more equitable through the development of diversified trading methods like barter.

Final analysis conclusion:

Influenced by changes in geopolitical situations and U.S. financial sanctions, cross-border barter trade is gradually emerging as an important form of international trade. Although barter trade has certain limitations, its necessity and urgency remain significant given the real needs of many economies. Additionally, the widespread adoption of this trade method reflects the willingness of emerging market countries to seek diversified cooperation and collectively face challenges amid changes in the global economic landscape.