Key Trends Of Global Trade: Growth And Future Prospects
Global trade has shown significant momentum in recent years, particularly since mid-2016, marking a recovery after a period of weakness. This resurgence is largely tied to a cyclical recovery in global manufacturing and investment, with a notable boost in the trade of capital goods, including machinery, electronics, and semiconductors.
Global Trade Dynamics
Global trade volumes have seen a robust recovery since mid-2016, following two years of stagnation. The primary drivers of this growth have been the synchronized recovery in import demand across both advanced economies and Emerging Market and Developing Economies (EMDEs).
By 2017, global trade growth had surpassed expectations, reaching an estimated 4.3%. This growth was particularly strong in the trade of machinery, electronics, and semiconductors, driven by increased investment activity worldwide.
However, the momentum in global trade is expected to moderate in the coming years, with projections indicating an average growth rate of 4% for 2018-19. This slowdown is attributed to the expected deceleration in capital spending in both advanced economies and China.
Structural factors such as the slower pace of global value chain integration and trade liberalization are likely to continue dampening trade growth.
Regional Trade Performance
The performance of global trade varies significantly across different regions. Export growth accelerated in most EMDE regions in 2017, benefiting from strong global demand. However, the Middle East and North Africa (MENA) region experienced a deceleration in export growth, partly due to the oil production cuts agreed upon by OPEC members.
China, in particular, saw a marked recovery in its trade flows in 2017, with a shift away from state-led investment driving growth. The enforcement of tighter capital flow management measures helped ease capital outflows and stabilize exchange rates, contributing to the country’s strong trade performance.
Structural Challenges and Protectionism
Despite the positive momentum, global trade faces several structural challenges. One of the most significant is the stalling of global value chain (GVC) integration. Since 2011, participation in GVCs has stabilized, and in some cases, even declined. This trend is particularly evident in complex GVCs, where value-added crosses national borders multiple times, as is common in high-value sectors such as motor vehicles, computers, and machinery.
Moreover, the rise in protectionist measures poses a risk to global trade. While the number of newly introduced protectionist measures stabilized in the largest economies in 2017, the stock of these measures continues to grow.
It is estimated that nearly three-quarters of G20 exports face some form of trade distortion in destination markets. Anti-dumping duties, tariffs, financial grants, and public procurement localization measures are among the most common types of trade restrictions currently affecting global trade.
Future Outlook
The future of global trade will largely depend on the continuation of current economic policies and the resolution of ongoing trade disputes. The moderation in trade growth expected in the coming years highlights the need for countries to address the structural issues that are limiting the potential for further trade expansion.
The rise of protectionism and the renegotiation of several free trade agreements could have significant implications for global trade flows, particularly for LICs, which are most vulnerable to these changes.
While global trade has shown a strong recovery in recent years, the outlook remains uncertain due to structural challenges and rising protectionism. Continued efforts to address these issues will be crucial in sustaining the momentum of global trade and ensuring that it continues to contribute to global economic growth.
