Key Statistics and Trends in International Trade and Trade Policy 2017
Key Statistics and Trends in International Trade: The Status of World Trade
After strongly rebounding from the Great Recession of 2009, international trade has grown at a sluggish pace that turned dramatically negative in 2015. Trade statistics for 2016 have been also following a negative trend, but at a more moderate pace (a decline of about 3 per cent in value terms). These statistics have been at odds not only with previous trends but also with respect to the overall economic environment.
Negative trade growth during a period of economic expansion has not been recorded since 2001, when the decline in the value of international trade was only marginal (not even 1 per cent). The magnitude of the decline in the trade of goods and services observed in 2015 and 2016 was a reflection of low commodity prices and of a change in the dynamics behind the process of international integration.
The most commonly used index to gauge globalization trends – the ratio of the value of world trade over global output – indicates a decline in economic interdependence. This index stalled at about 30 per cent between 2011 and 2014 (a level first reached in 2007), and then fell by about 5 percentage points during 2015 and 2016.
On a positive note, preliminary statistics for 2017 and the forecast for 2018 depict a less alarming picture. According to most international agencies, global output growth is expected to be between 3.2 and 3.6 per cent for 2017, with 2018 expected to register a similar increase. Global growth should positively influence world trade, which is expected to grow in 2017 between 3.5 and 4 per cent (in volume terms). A similar performance is forecasted for 2018.
The trade downturn of 2015 and 2016 was due to several factors. Primarily, a substantial part of the fall in the value of world trade was just nominal rather than a real contraction. In other words, while many exporters had to cope with lower prices, they saw no decline in export volumes. In particular, the fall in commodity prices and the appreciation of the United States dollar greatly contributed to the fall in the value of international trade. The appreciation of the US dollar has affected the value of international trade because the same volumes of goods can be purchased with fewer dollars. Still, deflationary factors can explain only some of the trade weakness of 2015 and 2016.
The statistics on the volumes of trade for 2015 and 2016, although positive, were also below historical standards, especially for developing countries. This has seldom happened in the last few decades and only during economic downturns, as in 2001 and in 2009. Two other factors contributing to the decline in global trade were a weak demand in major developed economies and the transition of East Asian economies from a trade oriented strategy towards a more domestically focused development path. Moreover, the weakness of international trade can also be partly explained by the ongoing decline in the vertical specialization process across countries.
An informative statistic for this trend is the reliance of the manufacturing sector on imported inputs (measured by the share of intermediate imports over the exports of manufacturing goods). This indicator has declined in many countries during the last decade. For example, in the case of China this statistic fell from almost 50 percent in 2007 to about 30 percent in 2016.
Geographically, the trade downturn of 2015 and 2016 was quite widespread. Developing countries were hit hard by the collapse in trade, and in most cases harder than developed countries. The value of international trade tumbled the most in commodity exporting regions. Sub-Saharan Africa's exports earnings declined by an average of about 20 per cent per year (about 30 percent in 2015 and an additional 10 percent in 2016). Lower oil prices contributed to the collapse of exports earnings in the transition economies and the region comprising West Asia and North Africa. Especially in those regions the lower exports earnings contributed to lower demand and reduced governments' budgets, negatively affecting imports. Lower export earnings also contributed to recessions and often resulted in the depreciations in the exchange rates, which ultimately further reduced demand for imported goods.
Other regions have fared relatively better, but still registered significant declines. Latin American and South Asian trade fell by about 10 percent per year, both in relation to imports and exports. For the region of East Asia, imports fell substantially more than exports (about 10 per cent vs 5 per cent). The resilience of East Asian exports is not surprising, as East Asian manufacturing exporters are highly competitive and therefore were better able to weather the unfavourable economic environment. For developed countries, trade declined at a yearly rate of about 6 per cent in relation to imports and about 7 per cent in relation to exports.
During the last two years, the decline in export earnings was severe for many countries, especially for those whose exports are oriented towards oil and fuels. Most countries registered a trade decline with the exception of Kuwait, Thailand and Vietnam and a number of smaller countries. The largest declines are those of the largest economies, with the European Union's exports decreasing the most in value terms, China second and the United States third. Also of significance was the drop in the value of exports in a number of oil exporting countries such as Russia, Canada, Norway and most of the countries in the West Asia and North Africa regions. Export earnings also declined substantially in the cases of India, Japan, Korea and Singapore.
A cautionary tale
Although international trade fared substantially better in 2017 than in the previous two years, it is still too early to gauge whether this positive trend will continue in the foreseeable future. There is still significant uncertainty affecting the global economy, and there are numerous elements which may negatively affect international trade in the coming years. Moreover, one statistical consideration is that the rebound that clearly shows in the data for 2017 is largely driven by the dismal performance of the two previous years. The value of international trade for 2017 is still expected to be well below 2014, by at least 2 trillion US$. On a positive note, most forecasts indicate that global economic growth is expected to be sound in 2018, at about 3.5 percent, and trade growth should therefore follow suit, at least in volume terms.
Still, there are several reasons to be cautious. Primarily, trade growth in value terms (and therefore export earnings) may be dampened by stagnating commodity prices. This will be problematic for a large number of developing countries, especially in Africa. The strong increase of commodity prices in 2017 is not generally expected to continue in 2018. The IMF forecasts its commodity price index to fall by 0.1 per cent in 2018. Second, monetary policy is expected to tighten in many developed countries. This may have a negative effect on demand in developed countries while increasing the value of the US dollar, and therefore reducing the value of international trade.
Moreover, international trade could also face increasing headwinds from policy factors. In particular, the debate on the uses and abuses of trade policy has grown more prominent over the last few years. And there is a real risk that the ongoing protectionist rhetoric will eventually materialize into restrictive policies. Developing countries were particularly active in the use of WTO dispute settlement mechanisms, with about 220 cases initiated in 2016. In 2015 the number of cases was about 160. Anti-dumping measures initiated by developed countries also were on the rise. About 80 investigations were initiated 2016, in contrast to about 50 in 2015. The use of anti-dumping measures is expected to have remained strong during 2017.
Overall, it is still unclear whether 2018 will see a continuation of the positive trends of 2017, or whether international trade will return to the weakness of the recent past. Definitively, in the coming years much of the fortune of international trade will depend on whether the skepticism over the benefit of trade and international collaboration will persist. As 2017 draws to a close, there are conflicting signals. While many of the factors that negatively influenced the debate on international trade in the past will likely persist, there are also a number of initiatives that could bring some momentum to international trade and multilateral cooperation.
The main reason to be pessimistic about the future of international trade is that the global trade regime has become increasingly unpopular in some countries. Moreover, the difficulties facing international trade are also evident from the outcome of the recent WTO ministerial. Finally, there are signs of mounting tensions about the persistence of trade imbalances and on the fairness of export promotion practices among the major economies.
More in general, a number of governments find it increasingly difficult to combine their domestic agenda with international commitments. In this context, the present difficulties of the multilateral trading system may bring reforms possibly by reducing its scope. This will likely have negative implications for international trade and international cooperation.
Still, there are also reasons to be optimistic about the future of international trade and international cooperation. The scope for further economic interdependence is still strong for many countries, trade costs have substantially declined in many parts of the world and there is still a large potential for an increase in economic integration within South Asia, Latin America and especially within Sub-Saharan Africa. Moreover, broader approaches such as the One Belt One Road initiative or a possible revival of a Trans-Pacific Partnership agreement without the United States will contribute to economic integration. Although there is going to be lot of uncertainty surrounding the evolution of world trade in the coming years, one thing is certain: for trade and international cooperation to resume and to succeed, governments need to advance an economic agenda that is not only outward looking but also fair and equitable.
Key Statistics and Trends in Trade Policy: Trade Imbalances
During the last decade international trade has been characterized by a progressive shift in the use of trade policy instruments. Tariffs have remained substantially stable during the last few years with tariff protection remaining a critical factor only in certain sectors in a limited number of markets. On the other hand, the use of regulatory measures and other non-tariff measures such as anti-dumping has become more widespread. Recent years have also been characterized by substantial movements in some of the major currencies.
As of 2016, developed countries' import restrictiveness was at an average of about 1.2 per cent. However, import restrictiveness remained higher in many developing countries, especially in South Asia and sub-Saharan African countries. Although low on average, tariffs remain relatively high in some sectors. Moreover, tariff peaks are present in important sectors, including some of key interest to low income countries such as agriculture, apparel, textiles and leather products. Tariffs also remain substantial for most South-South trade.
As of 2016, international trade is subject to and influenced by a wide array of policies and instruments reaching beyond tariffs. Technical measures and requirements regulate about two thirds of world trade, while various forms of sanitary and phytosanitary measures (SPS) are applied to almost all of agricultural trade. The past few years have also seen a general increase in the use of trade defence measures within the World Trade Organization (WTO) framework.
In spite of the current debate on trade agreements, the process of deeper economic integration has remained strong at the regional and bilateral level even in 2016, with an increasing number of preferential trade agreements (PTAs) being negotiated and implemented. Most of the recent PTAs address not only goods but also services and increasingly deal with rules beyond reciprocal tariff concessions to cover a wide range of behind the border issues. As of 2016, about half of world trade has occurred under some form of PTAs.
The economic turbulence of recent years has been reflected in exchange rate markets, both for developing and developed countries’ currencies. Exchange rate movements are playing an important role in shaping international trade in the last few years as they have influenced countries’ external competitiveness. The value of the United States dollar remained strong, continuing to appreciate against a large number of currencies.
These publications are a product of the Trade Analysis Branch, Division on International Trade in Goods and Services, and Commodities (DITC), UNCTAD secretariat. The publications monitor the trends of international trade in goods and services in the medium term, and inform on the use and effects of a wide range of trade policies influencing international trade, respectively.