Current Trends in Global Trade

The current trends in global trade can be discusses under the below heads.

Positive Relation between Word Trade Growth and World GDP Growth

World GDP growth is followed by the growth in world trade, and vice-versa. This indicates that there is a positive relation between growth in export and world GDP growth. However, this growth is non-linear. Both world trade and global GDP have increased much more rapidly since 1985 till late 2000s. This was because many countries in the world had launched economic reforms. During the global financial crisis, there was a dip in both the figures. Then, both the figures rebounded in 2010 due to the global recovery.

Huge jump in international trade

International merchandise trade increased was US$58 billion in 1948 and grew by 258 times to 15 trillion in 2010. This figure would have been higher, had it not been for the global financial crisis that resulted in reduced trade in 2008-2009. The major factor for such a huge growth of international trade in these decades has been the reduction in Trade Barriers due to the 8 rounds of multilateral trade negotiations beginning late-1940s. The supplementary reasons are:

  • Unilateral and autonomous trade liberalization
  • Regional trade agreements

Reduction in other trade costs such as transport, telecommunication, banking and insurance costs, and efficiency at the border.

The trade becomes diversified

In the early 1970s, trade was largely confined to a handful of advanced economies, notably the United States, Germany, and Japan, which together accounted for more than a third of global trade. By 1990, the global trading landscape had become more diversified to include several EMEs, especially in East Asia.

By 2010, China became the second largest trading nation after the United States, overtaking Germany and Japan. China’s emergence reflects its rapid industrialization process and growing trade openness; trade was 57 percent of GDP in 2008 in China— almost triples the ratio of the United States.

Rising share of high technology goods

The structure of trade has been characterized by a rising share of higher technology goods. The contribution of high-technology and medium-high-technology exports such as machinery and transport equipment increased, whereas that of lower technology products such as textiles declined. Technology intensive export structures generally offer better prospects for future economic growth.

Trade in high-technology products tends to grow faster than average, and has larger spillover effects on skills and knowledge-intensive activities. The process of technological absorption is “capability” driven and depends more on the national ability to harness and adapt technologies rather than on factor endowments such as Land Labour and Capital. Thus, the country-specific policies for technology learning and technology import, including those aimed at attracting foreign direct investment (FDI), can create the comparative advantage between countries with otherwise similar endowments of labor, capital, or skills.

Impact of Trade liberalization

A key factor has been the multilateral and bilateral trade liberalization since World War II, which resulted in a significant decline in trade barriers. Among major Western European and North American countries, average tariffs fell from 15 percent to 4 percent during 1952-2005, with the bulk of this decline occurring during the 1950s and 1960s. Tariffs increased or remained very high until the 1980s in many major developing countries but have since come down sharply as well.

Increasing foreign value-added (FVA) Exports

Foreign Value added (FVA) exports refer when the intermediate goods have the value added produced in each source country before they are exported for their export destination. Due to lower trade barriers, technology-led declines in transportation and communication costs , there has been a growth in the vertical trading networks (vertical integration among partners dealing in same products) that stretch across several countries. The flow of intermediate goods across countries in the global supply chain has increased as each country specializes in particular stages of a good’s production sequence. That is why the foreign value-added (FVA) exports as opposed to domestic value added (DVA) exports, has almost doubled since 1970. FDI has an important role in the diffusion of technology, especially across global supply chains.

Increased dominance of Rapid Growth Markets

Rapid-growth markets are becoming dominant force in global trade. Trade getting increasingly focused around Asia, the Middle East and Africa.  It is expected that in future, China’s dominance in low-end manufactured goods will increasingly come under pressure from lower-cost countries such as Bangladesh, Vietnam and parts of Africa.

Positive Relation between World Trade Growth and Trade-to-GDP Ratio

Trade as a percentage of GDP (trade-to-GDP ratio) is taken as an indicator of trade openness. The more trade/GDP ratio, the more a country is open to international trade. As global economy becomes more open, trade-to-GDP ratio has grown. The total exports of goods and services as a percentage of GDP have increased steadily from 1960 to 2008. This means that world economic growth has become more and more trade driven. Due to the global financial crisis the figure shows a major dip after 2008 until 2009.

Increased Contribution of Services in Global Trade

Please note that in compilation of data of services trade is a relatively new. The contribution of services to global trade was not recognized till mid-1970s, and so the data are also available from mid of 1970s. The data shows that the growth in global services trade has been more rapid than the growth in goods trade. Further, the Services trade has remained less volatile in comparison to the merchandise trade. Computer, communications and other services dominate the major share of the commercial service exports. Transport services, which occupied the largest share before 1984, have seen a drastic decrease all the way up to 2010. Contribution of travel services to the overall exports of commercial services have also been falling rapidly. Transport services shows the most drastic effect of the global financial crisis, which is partly ascribed to the reduction in goods trade in merchandise.

Role of MNCs

The influence of multinational corporations (MNCs) in global trade is ever-increasing. Accordingly, the global trade value has been associated with it. The MNCs are vectors of Intra-firm international trade.

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