International Trade Draft

7/29/2019 International Trade Draft

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World trade has recovered strongly following the global financial crisis and economic

recession. But, the recovery hasn't resulted in trade patterns same as before the crisis. In

fact, new patterns of international trade have emerged. It is strongly predicted that there

will be a net redistribution of wealth away from the rapid-growth economies, a

consequence of the financial downturn and the economic recession.The growth in the

advanced economies will be affected by the significant economic adjustments, a shift

away from dependence on the financial sector, Fiscal tightening, Deleveraging in the

private sector and Aging populations resulting in a scarcity of labour. Growth in the

advanced economies is not expected to exceed 3% in the near term, with a decline to 2%

by 2020. However, the rapid growth markets can expect a GDP growth of around 6% per

year to 2015, and slowing toward 5% by 2020. This is an indicator that the contribution

of the rapid-growth markets to global GDP is set to rise significantly. At current

exchange rate, the global GDP share of the Rapid growth markets ( Developing

economies ) is set to reach around 48% by 2020. In contrast, the share of global GDP

accounted for by the United States is forecasted to fall from 23% to 21%, while the share

of the Europe will decline to 15%. Clearly, this indicates that the economic prospects are

brightest in Asia and it is no wonder being touted as the region that will dominate world

trade by 2020.

Within Asia, India and China are predicted to become the motors of the world trade and

drive the growth in the rapid-growth markets. Both countries are expected to become

more important to global trade than US and Europe. Latin America, rich in natural

resources is also predicted to grow and the FDI inflows will only help to enable


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improvements in productivity and infrastructure. However, the region to watch out will

be Africa, which presents fresh trade opportunities. Africa is expected to capitalize on its

cheap and expanding labour force and natural resources. As businesses from different

countries have started investing in Africa, we are set to witness the rise of Africa and

increase in trade.

To summarize :

Regional trade growth will be faster than global growth . Asia is expected to dominate

with fastest growth in trade ,especially within the East Asia region itself. It is also

strongly predicted that India and China will explore and penetrate new markets in Africa

and MENA. Further, India and China are predicted to account for approximately one-

fifth of global trade flows by 2020 implying that the two most rapidly growing trade

routes will be US exports to China and India, foreseeing an average growth rate of

approximately 16% . Away from Asia, Europe is expected to improve its trade

position with China. However, Europe after all the problems it is currently facing will see

its share of global exports decline from 38% in 2010 to 34% in 2020. The recent

financial crisis and global recession caused United States to suffer with its world share of

exports decreasing. But, US is expected to record an increase in its share of world exports

in the next ten years as it capitalizes on its strength to export more to Asia.

Concerns : The past few months has seen the global economy take blows after blows,

from rising oil prices to the debt crisis in Europe. As a result the risk of even worse

outcomes, including a recession, can be foreseen. The current financial distress can have


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a demoralising impact on consumer and business confidence and as a result posts risks to

the growth in trade. The key concerns are as follows:

1. Renewed sovereign debt crisis in Europe. This has severely impacted the

creditibility of European Union. The lack of confidence can lead to further

sovereign defaults, rise in borrowing costs and force Europe into a recession. The

recession will cause losses for global banks and hence a tighter credit condition,

which will impact trade.

2. US recession. US has still not recovered from recession and its recovery is

marked as nothing but slow. As the household spending and investments

continues to be low , the impact can be felt in the stock markets. Political

deadlocks have limited the application and effectiveness of the fiscal policy. The

impact of which is and will definitely be felt on the trade in future as well.

3. Hard landing in China. A major risk is that of Hard landing in China. A fall in

commercial property can trigger the same banking sector stress as overseen in the

US. As a result, it runs the risk of falling investments leading to an impact on

growth of trade. These repercussions have the potential to affect the entire of

Asia and hence the world


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Controlling the growth of trade

Despite the introduction of various protectionist measures during and as a result of the

global financial crisis , the world trade recovered quicker than expected. The imports

from developing countries significantly contributed to the rapid recovery of trade.

To prevent such crisis impacting the global trade again, it is important not to overlook the

impact of protectionism in the revival of world trade. Though, the organizations like

GATT, its successor WTO have prevented a protectionist race, there is still the potential

risk from another type of protectionism, Murky protectionism. It is imperative to

carefully monitor the future development of international trade policy, even if exports

from developing countries have rebounded and the extent of protective measures has not

gone beyond control. There is an urgent need to further strengthen multilateral trade rules

because considering the current situation of debt crisis and the fragility of the financial

markets in some developed countries, it is very likely that the demand for exports from

developing countries can fall and lead to a negative impact on the world trade. Hence, the

need for improvement of monitoring and control of protectionist measures is all the more

felt and required.

References :

Trading places, The emergence of new patterns of international trade by E&Y.

Trading Places: International Integration after the Crisis byMona E. Haddad andBernard Hoekman

The Financial Crisis and International Trade The Consequences forDeveloping Countries by Kathrin Berensmann / Clara Brandi


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Appendix : Growth Predictions

Documents

International Trade Draft