China: biggest trade power by 2015

If emerging markets grab a bigger share of world output, as is almost universally forecast, they are very likely to take an even larger slice of world trade – with all sorts of consequences for service, manufacturing, and trading companies.

According to Citigroup, big changes are coming very soon:  China will replace the US as the biggest economy by trade, developing Asia will overtake western Europe as the largest region by trade,  and  intra-EM trade will exceed trade among developed economies – all by 2015.

Citi gilds the lily by including in its definition of EMs Hong Kong, Singapore, South Korea, Israel and Slovenia – four economies which are often classified as developed, notably by the IMF.

Never mind, the trends would still be the same, although the changes would come less precipitously.

The forecasts are based on a prediction of a huge surge in global trade from 61 per cent of world GDP in 2010 to 84 per cent by 2030 and 86 per cent in 2050. That will come with a 7.1 per cent annual growth in trade until 2030 and 4.7 per cent thereafter. The numbers are heroically precise, given the risks inherent in long-term forecasting. But, the projected growth rates aren’t outlandish – trade has grown at 6 per cent annually since 1960. Citi says in a report published on Thursday: “We expect the long-run growth story of world trade to continue over the next four decades.”

With growth comes a shift from the developed world to the developing and from Europe to Asia. Citi says:

The shift of world trade from today’s AEs to EMs will also likely manifest itself in a large regional shift in the composition of trade. Developing Asia (DA) accounted for 24% of world trade in 2010, but its share is expected to reach 42% by 2030 and 46% by 2050. This constitutes a rather dramatic change from the mere 11% of world trade the region accounted for in 1990, but is in line with the shares of world GDP (47%) or world population (50%) that we expect this region to account for in 2050.

By country, Citi expects things to develop as follows:

Citi sensibly cautions that, as with any long-term forecast, things could go wrong. Trade growth – and indeed catch-up economic growth in EMs – depend on open markets, liquid foreign direct investment flows and migration. Trade barriers get in the way – and are noticeably higher in EMs than in the developed world.

CARPE DIEM: World Trade and Output Have Fully Recovered

1. World trade volume increased in March for the seventh consecutive month, bringing global trade to a new all-time record high (see chart).   This was also the fourth month in a row that world trade was above the previous peaks during early 2008 when the U.S. recession and financial crisis started spreading, causing world trade to drop by 20% in 2009.  World trade is now 3.4% above the previous peak in April 2008.      3. World industrial output declined by 0.8% in March from February, following a slight increase of 0.10% in the previous month.  According to the CPB, the "March decline was caused by the disaster in Japan, where production plummeted by 14.9%," while growth in industrial output was positive in the United States, emerging Asia, and Latin America in March.  For the first quarter of 2011, world output increased by 7% on an annual basis compared to the first quarter last year.  Even with the Japan-related decline in March, world industrial output is 4.2% above the previous cyclical high three years ago in March 2008.   Though we still face many economic uncertainties moving forward, the strong economic recovery to date for world trade and world output is encouraging and hopeful.  The fact that both world trade and world output are now 3-4% above their early recession peaks is clear evidence that the world economy has fully recovered from the Great Recession and financial crisis of 2008. 

World trade and output have recovered but US employment has not. Does that not argue for a return to an economy where we produced manufactured goods for ourselves and purchased only those raw materials we do not have? Our long history as a trade protected economy proves that we are capable of making almost all of what we need. Real wages of blue collar workers were higher in the past. That says the net impact of the lower prices consumers get from imports is eclipsed by lower wages. For all practical purposes that group of Americans who are consumers is the same group of Americans called workers. Why should we organize our economy to advantage trust fund babies to the detriment of the rest of us?

Shipping and Logistics Management

Guide to economic indicators, making sense of economics

American Government and Politics Today 2008, The Essentials

Issues and developments in international trade policy

World development indicators 2003