Copyright © 2004 Global Insight, Inc. International Trade Outlook Paul Bingham Principal, Global Trade and Transportation Practice Global Insight Outlook

Copyright © 2004 Global Insight, Inc.

International Trade Outlook

Paul Bingham

Principal, Global Trade and Transportation Practice

Global Insight Outlook Seminar

May 27, 2004

San Francisco, California

Copyright © 2004 Global Insight, Inc. www.globalinsight.com 2 02/2004

Factors Affecting Trade Outlook

Exchange rates changing export competitiveness

Doha round of world trade talks not over

New bilateral U.S. Free Trade Agreements (FTAs)

EU expansion, leading to changes in trade treatment

Asian trade growth driven by China as trading power

WTO accession by China

Highlights of commodity trade forecast


-12

-8

-4

0

4

8

12

16

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Real Exports Real Imports

(Year-over-year percent change)

Top Line for U.S. Trade: Real U.S. Exports and Imports Rebounding with Global Recovery


Asian Currencies Have Remained Most Stable

-5 0 5 10 15 20 25 30 35

AustraliaChina

Hong KongIndia

IndonesiaJapanKorea

MalaysiaPhilippinesSingapore

TaiwanThailand

Euro

(Percent appreciation in 2003)U.S. export growth is up; European export growth is slower


World Trade Liberalization Delayed

The World Bank estimates that the Doha agenda could boost world income by $270-520 billion and lift 140 million people out of poverty. Developing countries receive 60% of the benefits.

The Sept. 2003, Cancún setback resulted from unfulfilled expectations on agricultural subsidies, excessive caution of developing countries, and deep divisions on the Singapore issues (trade facilitation, investment, competition, public procurement)

Cancún stalled, but did not end, the Doha round.

Agriculture is key; developing countries have failed to penetrate agricultural markets of developed countries.

New European Union proposal to end agricultural export subsidies was welcomed by the U.S. but offers less than it seems in the way of true reductions in farm subsidies.


E.U. & U.S. Trade Policy Affects World Trade Talks

Europe Union has imposed tariffs on $4 Billion in selected U.S. exports in dispute over U.S. Foreign Sales Corporation and Extraterritorial Income tax breaks for U.S. exporters.

Real impact will be limited as tariffs cover only 1% of U.S. – European Union trade and tariffs are phased in over 12 months.

Election year politics stalling needed Congressional action.

U.S. Trade Representative’s focus is now on FTA’s with Australia, Central America, Chile, and many other countries.

Global momentum is now with bilateral and regional trade agreements, not with the WTO.

Bilateralism is not a valid alternative for developing countries, which have relied too much on trade preferences.


European Union Accession Schedule

Countries joining 2004

Poland

Hungary

Czech Republic

Slovakia

Lithuania

Latvia

Estonia

Slovenia

Cyprus

Malta

Countries recommended to

join in 2007

Bulgaria

Romania

No starting date recommended

Turkey


European Union Geography Affects Trade

Expansion of the European Union continues, with 10 new countries just joined and more hopefuls awaiting membership (and benefits).

The U.S. has reacted to EU expansion with changes in trade treatment for the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia as beneficiary developing countries, ending duty-free treatment of designated eligible exports under the Generalized System of Preferences.

Other countries are also aligning their trade rules for the new EU members to match existing European Union trade treatment.

New accession countries will continue to attract foreign direct investment and two-way trade with Western Europe, somewhat at the expense of trade with the rest of the world.


Asia – Strong Contributor to World Trade Growth

Asia is seeing above world-average domestic demand growth, making it a mini-growth locomotive for the world

Asia, especially China, has provided a huge boost to commodity exporters worldwide, using up supply and leading to higher prices

Asia was also one of the regions to first see inflation rising in the recovery, though this has not yet slowed trade growth

Being members of the de-facto “super-dollar-bloc” has helped Asia; therefore, barring a crisis, these countries will be in no hurry to let their currencies float more freely

High savings rates mean that these economies will continue to be capital exporters…

… However, rising domestic debt is a source of concern


China’s Emergence as a Trading Power

China’s rapid expansion has been driven by exports, foreign direct investment, and public infrastructure spending – all were up about 30% in 2003, boosting world trade

Growth in investment is moderating in response to trade frictions, government actions to slow overheating, and mounting nonperforming loans in the banking system

WTO accession is forcing China to reform its inefficient state enterprises and banking system, raising unemployment

China will resist international pressures to revalue the renminbi until 2005, then gradually widen its trading band

China’s closed and rigid political system will become increasingly incompatible with its market-oriented economy


China’s Progress Under Market Reforms

1980 2002

Real GDP (2002$ billions) 169 1,239

Relative GDP (% of U.S. level, 2002$) 3% 12%

Real GDP Growth in Previous 10 Years 5.3% 9.3%

Population (millions) 981 1,285

Real Per Capita GDP (2002$) 171 964

Trade’s Share in GDP 15% 55%

Current Account Surplus ($ billions) 1 35

Agriculture’s Share in GDP 30% 15%

Urbanization 20% 32%


China’s Big Structural Problems

State Owned Enterprises

Highly inefficient

Soft budget – stealing(profit privatization;loss nationalization)

Money losing

Financial Intermediation

State-owned banks dominated(no lending to private sector)

No well developed bond market or market-

based interest rates

Huge non-performing loans(official: 25%, unofficial: 50%+)


China’s WTO Agreement Summary

Reduce average tariff to 9.7% by 2005 (from 15.3%)Agricultural goods to 15% Industrial goods to 8.9%Most information technology equipment to 0%Agreed to bind all tariff schedules

Eliminate all quotas and other nontariff barriers by 2005

Open domestic service sector to foreign investment – telecommunications, distribution, financial services

Abide by international standards in intellectual property rights protection

Allow trading partners to restrict their Chinese imports


China’s WTO Agreement in Comparison

Industrial Goods Tariffs

China 8.9%

Argentina 30.9%

Brazil 27.0%

India 32.4%

Indonesia 36.9%

New WTO Entrants 12.4%


Tariff Reduction Already Substantial

55.6

43.3 43.7 44.1 43.239.9

35.9

23.0

17.0 16.4 15.3

9.7

0

10

20

30

40

50

60

1982 1985 1988 1991 1992 1993 1994 1996 1997 2000 2001 2005

(Average tariffs, percent)


0 2 4 6 8 10 12 14 16 18

China

Brazil

Mexico

Taiwan

Korea

Singapore

Europe

United States

Japan

(Manufacturing wages, $ per hour, 2001)

Sources: U.S. Bureau of Labor Statistics, China’s National Bureau of Statistics

United States: $16.14

China: $0.61

China’s Manufacturing Wage Competitiveness


0

3

6

9

12

15

1980 1990 1995 2000 2005

China* Hong Kong* Taiwan* Intra-Regional

* Export totals from China, Hong Kong and Taiwan exclude trade with each other.

(Percent share of world manufacturing exports)

Greater China’s Expanding Role in World Trade


*

Value of U.S. Merchandise Trade with Asia, Billions of Dollars

U.S. Trade with Asia Stays Imbalanced

0

100

200

300

400

500

600

700

800

900

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Exports Imports


*

China’s Share of U.S. Merchandise Trade with Asia, Percent

China’s Importance as U.S. Trade Partner Jumps

0

5

10

15

20

25

30

35

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Exports Imports


0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

TE

Us (

full

)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

US Container Imports from World by Coast

US EC & Gulf US West Coast

U.S. Container Trade Coastal Shares Equalizing

Coastal Distribution More Balanced


Growth of N. American Imports from the European Union Slowed Near-Term Due to Exchange Rates

0

20

40

60

80

100

120

140

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0

5

10

15

20

25

30

35

Seaborne Container

(Millions of Tons)


N. American Exports Now Strong to Europe (EU)

116

118

120

122

124

126

128

130

132

134

136

138

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0

2

4

6

8

10

12

14

16

18

Seaborne Container

6% drop in trade

4% increase

11%

(Millions of Tons)


North American Container Imports from Asia Continue to Increase as Share of Total Tonnage

(Millions of Tons)

0

20

40

60

80

100

120

140

160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Seaborne Container


Recovery in N. American Exports to Asia is Primarily Not in Containerized Goods

(Millions of Tons)

0

20

40

60

80

100

120

140

160

180

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Seaborne Container


Transpacific Airborne Trade Growth Slows From Very High Levels, with U.S. Exports Faster in 2005

Air Cargo Tonnage Growth

0

2

4

6

8

10

12

14

2004 2005 2006 2007 2008

Eastbound Westbound



Asia – Europe Airborne Trade Growth Becomes More Balanced Though Not Immediately

0

2

4

6

8

10

12

14

16

2004 2005 2006 2007 2008

Per

cen

t C

han

ge

Eastbound Westbound



Intra-Asia Airborne Trade Strong But Cooling Off


0

2

4

6

8

10

12

2004 2005 2006 2007 2008



Trade in Containerized Commodities Continues to Grow Faster Than Trade in Bulk Commodities

Top Containerized Commodities 2004 2000-2010Tons CAGR%

Synthetic Resins 34,950,891 3.6Other Food 25,356,281 1.9Vegetables, Fruits and Eggs - req Refrigeration 24,158,439 4.4Paper and Paperboard and Products 23,281,880 2.3Textiles 23,266,818 3.6Non-Metallic Products, nec. 20,306,448 2.1Non-Ferrous Metals 18,054,844 3.1Metal Products 16,862,828 6.0Chemical Products, nec. 15,016,538 4.6Iron and Steel 14,870,455 0.6

Top Commodities - All Modes 2004 2000-2010Tons CAGR%

Crude Petroleum 2,132,980,864 2.2Petroleum Refineries 619,591,135 1.1Ores and Scrap 613,249,339 2.6Coal 598,230,698 1.0Natural Gas 458,706,455 1.2Stone, Clay and Other Crude Minerals 449,384,323 1.5Iron and Steel 312,702,517 1.3Grain 233,268,422 0.4Cork and Wood 197,270,502 0.9Non-Metallic Products, nec. 184,065,860 2.0


Trade in Containerized Commodities Growing Fastest is High-Value, Lower-Weight Goods

Top Containerized Commodities 2004 2000-2010Tons CAGR%

Synthetic Resins 34,950,891 3.6Other Food 25,356,281 1.9Vegetables, Fruits and Eggs - req Refrigeration 24,158,439 4.4Paper and Paperboard and Products 23,281,880 2.3Textiles 23,266,818 3.6Non-Metallic Products, nec. 20,306,448 2.1Non-Ferrous Metals 18,054,844 3.1Metal Products 16,862,828 6.0Chemical Products, nec. 15,016,538 4.6Iron and Steel 14,870,455 0.6

Top Growing Containerized Commodities 2004 2000-2010Tons CAGR%

Semi-conductors, Electronic Tubes,etc 3,086,846 12.5Office and Computing Machinery 7,483,659 10.6Other Communications Equipment 4,479,727 10.3Electrical Industrial Machinery 6,625,736 9.5Furniture and Fixtures 13,158,723 9.1Electrical Appliances and Houseware 5,074,291 9.0Professional Equipment 973,997 8.9Other Manufacturing, nes. 13,895,674 8.9Electrical Apparatus, nec. 7,347,122 8.8Plastic Products, nec. 9,958,175 8.1


Methodology behind the trade forecasts

Trade forecasts from our comprehensive World Trade Service

Covers all commodities shipped via all modes of transport

Covers all international merchandise trade bilaterally between countries of export and import (over 4,800 trade routes)

77 individual global commodity trade models

Annual frequency forecasts driven by Global Insight’s world macroeconomic and industry forecasts as well as historic patterns of commodity trade, updated quarterly

Forecasts available to clients over the web using our Global Trade Navigator data interface


Conclusions

The strength of the U.S. and global expansions are driving continued growth in trade

Overseas demand growth and U.S. dollar depreciation leads to greater U.S. exports but dampens growth of European exports

U.S. trade grows fastest with Asian, especially with China

Asia - Europe and U.S. - European trade growth healthy but European exports to Asia will see only weak growth

Trade in lighter weight, higher value products will outpace growth in bulk commodity categories

Relative trade growth for transport modes will reflect underlying commodity growth rates, which will benefit air carriers and container vessel operators

Copyright © 2004 Global Insight, Inc.

Thank You

Paul Bingham

[email protected](202) 481-9216

www.globalinsight.com

Documents

Copyright © 2004 Global Insight, Inc. International Trade Outlook Paul Bingham Principal, Global Trade and Transportation Practice Global Insight Outlook