TRADE TRENDS AND PATTERN
World trade has expanded dramatically over the pass 50 years. Figure 18-1 shows the level of exports, expressed in current U.S. dollars, by region, from 1974 to 2007. The trend in imports by region would look similar even though some nations, like the United States, import more than they export and others, like China, export more than they import. The persistence of trade deficits and surpluses do little to after the aggregate pattern of regional trade flows.
Export (and imports) from high-income nations continue to dominate global exchange. This may surprise you because it often seems that everything is made in China. The label, "Made in China," appears in much of our clothing, shoes, toys, and hundred of other consumer goods. But the bulk of world trade, whether in airplanes, automabiles, computer software machinery, pharmaceuticals, wheat, and other goods still originates and is exchanged high-income economics. Beginning in 2009, China replaced Germany as the world's largest exporter of goods. But even as the world's largest exporting nation, China accounted for only 10 percent of world exports. Canada, not China, remains the major trading partner of the United States.
Measured at market exchange rates, the high-income economics account for almost 80 percent of world gross domestic product (GDP). Even if these nations trade a smaller percentage of their GDP than China, as many do, they still dominate world trade. Remember, GDP is the sum of all expenditures on consumption, investment, and government spending plus net exports (exports minus imports). If the high-income economics produce 80 percent of world output, it is no surprise that they also produce almost 75 percent of world exports and imports.
'1' Figure 18-1 refers to merchandise exports only —that is, exports of goods, including primary products (such as agricultural goods, oil, and minerals) and manufactures, measured in current U.S. dollars unadjusted for price inflation. Trade in services, such as tourism and international transport, insurance and financial services, and call-center activities and data processing, is not included. Merchandise trade in 2007 accounted for 80 percent of total world trade.
But there has been significant growth in exports from low- and middle-income economies. This growth can be traced back to the late 1970s, after China's reversal in policy toward a more outward-looking trade strategy. Even earlier, Hong Kong, Korea, Singapore, and Taiwan had considerable success with trade serving as an engine of econimic growth. Other nations, including China, began to follow a similar model. The growth in exports from East Asia is shown in Figure 18-1 and can be seen more dramatically in Figure 18-2, which shows the share of total trade in GDP, including imports and exports of both goods and services, by region and decade. East Asia, the region with the highest rate of growth in GDP per capita over the 30 years is also the region with the steepest increase in the ratio of trade to GDP. This ratio averaged around 20 percent in the 1970s but exceeded 75 percent in the 2000, considerably higher than any other region. Thereis little doubt that trade played a central role in East Asia's achievements in both economic growth and development
For developing countries as a whole, imports plus exports on goods and services combined are now equivalent to over 64 percent of their total output, indicating that large portions of these economics are influenced by global markets. But there are stark regional differences in these trends, and Figure 18-2 reveals some patterns that may be less familiar. Sub-Saharan Africa is often thought to be marginalized from the global economy. This is true in terms of the region's minuscule contribution to world exports and imports. Its merchandise exports constituted 3.6 percent of the world total in 1970, falling to just 1.8 percent by 2007. But viewed from the perspective of the region, trade has always accounted for a large share of Sub-Saharan Africa's GDP. In the 1970s the trade to GDP ratio, at 53 percent, was higher than in almost any other region at that time; in the 2000s, it averaged 66 percent, second only to East Asia. The problem for the region has not been the share of trade in output but the failure of trade and GDP to grow by very much overtime. South Asia, where India's economy dominates, is the region where trade continues to play the smallest role, although that is beginning to change with a greater emphasis on both exports in India and elsewhere.
As economies grow and the share of trade increases, the products imported and exported tend to change as well. On the import side, as incomes grow, countries typically import more sophisticated consumer goods and intermediate products as inputs to manufacturing. On the export side, as workers gain new skills and increase productivity, the composition of exports shifts away from primary products to manufactured products and even to some services, includind call centers, data processing, and other examples of what is commonly referred to as outsourcing.
Figure 18-3 shows how the composition of merchandise exports has changed by region. The concern, once widely held, that developing nations might get stuck exporting primary products in return for imports of manufactured goods from developed countries, has limited validity today. Over the past three decades manufactures have replaced primary products as the main exports for three regions: East Asia, Latin America, and South Asia. These regions still export primary products, including natural gas from Indonesia, copper from Chile, and tea from Sri Lanka, but the export of manufactured goods now constitutes the majority.
Mauritius, an island economy off the east coast of Africa, has followed a similar pattern. In 1975, Mauritius's primary export was sugarcane, with manufactured goods accounting for only 12 percent of merchandise exports. By 2000, 81 percent of merchandise exports was from manufactures, as Mauritius became a major producer of clothing. Today, Mauritius is relying less on sugarcane and clothing and is developing exports in services, such as offshore banking, telecommunications, and tourism. But on the African continent, primary products, including coffee, diamonds, groundnuts, oil, and minerals, continue to dominate merchandise trade. The impact of primary product exports on African and other economies is considered in detail later in this chapter.
For all developing regions, the majority of trade (around two thirds) continues to be with high-income economies. Since 1990, this share, not surprising, has increased significantly for the former Soviet Union and Soviet bloc. It has fallen in the Middle East as more oil exports go to other developing areas. The biggest change in Asia is that almost half of Asia's exports today are sent to other countries in Asia, including the larger high-income economies in the region (Japan, Korea, Singapore, and Taiwan). In 1980, within-Asia trade made up about one third of the region's total. Raw materials and intermediate products produced in one Asian country now are likely to be exported to a neighboring country for finishing and final export. China's dramatic rise is particularly significant. Its imports have grown almost as fast as its exports, and it is now one of the biggest markets in the world. A significant share of China's manufactured export products are assembled using components imported from other Asian economies.