International Trade Trends 2016-2017 (Study)

Abstract:

· Slowdown in the growth of international trade in goods in 2016;

· Factors include the effects of lower oil prices, exchange rate movements, and the global economic slowdown;

· The slowdown in trade in 2016 is more pronounced in developing economies and in Asia and South America.

Since the 2008 financial crisis, international trade has been subject to several uncertainties, affecting trade performance and calling into question the benefits of globalization. International trade performance has been deteriorating since 2014, following a period of post-crisis recovery. The volume of international trade continued to grow modestly, reaching 1.3% in 2016, compared with 6.4% before the crisis (2007) and -12.6% in 2009. The World Trade Organization (WTO) forecasts for 2017 and 2018 are more optimistic. International trade has shown signs of improvement since the beginning of 2017.

This note will provide an update on international trade trends in 2016, presenting the various factors behind the weak performance of international trade in 2016.

Slowdown in international trade growth in 2016

In 2016, the volume of global trade in goods experienced its lowest growth rate since the 2008 financial crisis, averaging 1.3% for exports and imports. In addition, the growth in trade volume was lower than the growth in global production, even though the latter also slowed (growing by 2.3%) (Figure 1). The ratio of growth in the volume of trade in goods to GDP growth is around 0.6, showing that an increase in global GDP does not necessarily translate into additional demand for imports.

Figure 1 – Changes in global production and international trade volumes

Mattoo and Ruta (2015) suggest that the decline in the trade-to-GDP ratio is linked to the slowdown in vertical specialization[1] in the context of the international division of production processes (IDPP). Bussière et al. (2013) offer another explanation for these new trends in international trade based on demand. The authors define a measure of import intensity for the various components of demand (consumption, investment, government spending, exports). Using the same methodology, Auboin and Borino (2017) explain the decline in international trade performance over the period 2012-2015 by a decline in investment demand, the most import-intensive component of demand.

Decline in commodity prices

Although the volume of international trade increased in 2016, the value of trade fell by an average of 3.3% in 2016. This is partly due to the decline in commodity prices that began in late 2014 and continued into early 2016 (Figure 2). The fall in prices was most severe for oil, which fell by 51% between June 2014 and January 2015 and by 37% between January 2015 and January 2016, before improving, notably due to efforts by exporters to reduce production volumes. The decline in prices for metals and agricultural goods was less significant. In summary, the decline in commodity prices had a greater impact on international trade performance in 2015 than in 2016.

Figure 2 – Changes in commodity price indices (2005=100)

Exchange rate trends

The decline in international trade can also be explained by the appreciation of the US dollar by 13% in 2015 and more than 4% in 2016 against a basket of currencies of the United States’ main trading partners. This appreciation further penalizes importers of raw materials, particularly oil.

Indeed, commodity prices in dollars are rising as a result of the dollar’s appreciation, making them expensive for importers using other currencies. Demand for commodities is therefore falling, affecting their prices. This appreciation is reinforced by the recovery in global demand and the series of stimulus policies announced by Trump since his election in 2016.

For its part, the Chinese currency, the renminbi, also experienced devaluations in 2015 and 2016 after appreciating in 2014 (Figure 3), thereby affecting Chinese imports. The euro exchange rate against the currencies of the eurozone’s main trading partners remained stable in 2016.

Chart 3 – Change in the nominal effective exchange rate (2010=100)

International trade trends vary from country tocountry

The slowdown in international trade in 2016 seems to have affected developing and emerging countries much more than developed countries. In terms of exports, trade growth in 2016 was 1.4% for developed countries and 1.3% for developing countries. In terms of imports, developed countries achieved 2% growth, while developing countries stagnated at 0.2% growth.

The evolution of international trade also varied by region. In Asia, the slowdown in activity in China and fluctuations in the renminbi marked the first quarter of 2016. This resulted in a decline in Asian imports, before an improvement over the rest of 2016, as shown in Figure 4. In South America, the decline in trade volume was more significant. This was due in particular to the fall in commodity prices and the economic recession that Brazil experienced from 2014 onwards (with GDP growth of -3.6% in 2016). International trade performed well in Europe and North America, although the latter’s contribution to international trade growth was very modest in 2016 (0.1% contribution compared with 1.2% contribution to total trade growth of 2.9% in 2015, according to the WTO).

Figure 4 – Exports and imports of goods by volume (indices, seasonally adjusted, 2005Q1=100)

Trends in trade in services

In terms of services, exports fell dramatically in 2015 by 5.68% in current dollar terms. Exports of commercial services stagnated in 2016, with a 0.37% improvement compared to 2015 (Figure 5). The transport sector was the most affected in terms of export performance, with a decline of 10% between 2014 and 2015 and 4% between 2015 and 2016. This is partly due to the appreciation of the US dollar and the decline in demand for freight transport, reflecting the stagnation of the global economy. Financial services also experienced a decline in export performance of around 4% in 2015 and 2016. This may be a reflection of the challenges and changes associated with the expansion of digital technologies. According to WTO statistics, the information technology sector was the best performer in 2016 in terms of exports, with trade growth of 4.5% in 2016. This reflects the evolution of the data economy, which is imposing new forces on the international market.

Figure 5 – Change in the value of trade in commercial services (in %)

Conclusion

International trade slowed in 2016, with trade growth lower than global production growth. Falling commodity prices, the appreciation of the US dollar, and the slowdown in global production were behind the weak performance of international trade. Trade developments varied across regions. Asia and South America were the most affected, given the slowdown in the Chinese economy and the fall in commodity prices. The outlook for international trade in 2017 and 2018 is positive. 2017 is already showing signs of a recovery in international trade.

2017: Recovery in international trade?

Summary:

· Recovery in international trade at the beginning of 2017, with stronger growth expected in the first quarter than in the second half of the year;

· Positive signs for international trade growth, particularly with the recovery of emerging countries and the resilience of their currencies, the economic recovery of the Eurozone, and China’s « Silk Road » project;

· Despite the signs of recovery, certain risks related to rising protectionism, geopolitical tensions, and the development of e-commerce must be taken into consideration.

Since the 2008 financial crisis, international trade has been subject to several uncertainties, affecting trade performance and calling into question the benefits of globalization. After a year of weak international trade performance in 2016, the World Trade Organization (WTO) forecasts for 2017 and 2018 are more optimistic. International trade has shown signs of improvement since the beginning of 2017.

This note will therefore provide an update on international trade trends in 2017, offering food for thought on the future of international trade, given the various positive signs and risks associated with changes in trade.

Some statistics

After two years of weak international trade performance (see Note 1/2), the beginning of 2017 showed signs of improvement, leading the WTO to raise its forecasts for trade volume growth to around 2.4% in 2017 and 2.1% to 4% in 2018. International trade did indeed accelerate during the first half of 2017. The volume of international trade increased by 1.4% during the first quarter of 2017 and 1.3% during the second quarter. This was particularly true of trade flows from Asia and imports from North America (Figure 1). This is mainly due to strong GDP growth in the United States and China, which has boosted trade. In this regard, the International Monetary Fund (IMF) forecasts optimistic figures for China in 2017 in terms of economic growth, in the order of 6.7%.

In terms of value, global exports rose by 5% (FOB) during the second quarter of 2017. However, commodity prices began to fall again in mid-2017 after recovering a few points of growth from 2016 (see Chart 1).

For the G20, the start of 2017 was positive in terms of trade. The first quarter of 2017 was the^fourth consecutive quarter of growth in trade in goods.

· G20 goods exports in value terms (current US dollars) increased by 3.4% compared with 1.7% in the last quarter of 2016. This growth was around 3.2% for China, 3.2% for the United States, and 1.5% for the EU28. France is the only G20 country to record a decline in exports (2.5%), the result of a particularly exceptional year in 2016, with a 17% drop in exports in the aerospace sector[1]. Among the BRIC countries, Brazil experienced the highest level of export growth (21.5%), particularly following the recovery of the Chinese economy, which accounts for nearly 18% of Brazilian export destinations.

· In terms of imports, the value of G20 trade increased by 4.2%. China recorded the highest growth rate at 9.6%, bringing its trade surplus down to its lowest level since the second quarter of 2014. However, the recovery in international trade was less pronounced in the second quarter of 2017. Export growth in value terms fell from 3.4% to 1.4%. Import growth fell from 4.2% to 1.7%.

International trade performance in the second quarter varied from region to region. At the EU28 level, the recovery was confirmed, with exports increasing by 3.8% compared to 1.5% in the first quarter and imports growing by 3.5%. The value of trade remained stable for the United States. For Mexico, export growth slowed in the second half of the year (1.3% compared with 2.1% growth in the first half), while imports stagnated. Brazil, meanwhile, saw a decline of 5% and 6% in exports and imports, respectively. Chinese imports also fell by 3% between the first and second quarters of 2017. The decline in commodity prices, particularly oil in the second quarter of 2017 (see Chart 2, Note 1/2), is also reflected in the value of exports for Russia and Saudi Arabia, which fell by 5.9% and 20.9%.

Finally, trade in commercial services also saw a modest improvement of 2% in the last quarter of 2016 and 0.9% in the first quarter of 2017. The year 2017 has therefore seen a rebound in trade so far, which was more pronounced in the first quarter. According to the World Economic Outlook published by the IMF in October, trade growth is expected to reach 4% in 2017, which is 1% higher than global GDP growth.

Positive signs for the future

The recovery in international trade may be reinforced by the improving situation in emerging economies. The IMF has revised its October forecasts upward for China’s economic growth (+0.1% compared to July forecasts). In addition, the value of Chinese imports rose by 18.7% year-on-year in September, which will benefit China’s trading partners in terms of exports. China’s new « Silk Road » project will also have an impact on global trade. With massive investments, China’s goal is to foster economic ties between Asia and Europe, and above all to reduce its dependence on sea routes, notably by improving rail connections and installing a land network.

The economic situation is also improving for Brazil, following a dramatic recession in 2016. According to the Brazilian Institute of Geography and Statistics (IBGE), growth rose by 1% in the first quarter of 2017 compared with the last quarter of 2016. The recovery of emerging economies is accompanied by the resilience of emerging currencies. Capital inflows to emerging countries have picked up, averaging $200 billion in the first two quarters of 2017, compared to a quarterly average of $120 billion in 2015-2016. The MSCI Emerging Markets Index rose 14% in October 2017 compared to its value in January 2016.

Europe is also taking steps towards economic recovery. The EU28 posted stronger trade growth in the second quarter than in the first quarter of 2017. In addition, the economic recovery in the eurozone appears to be gaining momentum. Economic growth has continued since the end of 2016, with GDP growth of 0.7% and 0.6% in the second and third quarters of 2017, respectively, according to the latest Eurostat estimates. In addition, Eurozone GDP growth in the third quarter of 2017 was 2.5% compared to the same period in 2016. The decline in unemployment and the easing of uncertainties related to elections in certain countries in the zone are also positive signs for the recovery of the eurozone economy. As such, the IMF revised its growth forecasts for the zone upwards in its latest October report, to 2.1% in 2017, 0.4% higher than its April forecasts. However, the IMF’s economic growth forecasts for the United States were revised downwards in October, by -0.1% compared with the April forecasts.

Risks to international trade

However, uncertainty about the recovery of international trade remains high given the presence of a number of factors that could weaken trade. First, the years 2016-2017 have been marked by a rise in protectionism and nationalism. This mainly concerns the protectionist threats made by US President Donald Trump, summed up in his slogan « America First. » One example is the US threat to withdraw from the North American Free Trade Agreement (NAFTA). The US is calling for a renegotiation of the agreement in order to « modernize » it. This request is motivated by the shift in the trade balance with Mexico from a surplus before the agreement to a deficit after the agreement. These anti-globalization trends were widely denounced by G20 leaders at a meeting of G20 finance ministers in October 2017. In addition, a third interest rate hike by the Fed is possible, following those in March and July. This sudden and unexpected rise in interest rates in the United States would generate a lot of volatility in emerging market currencies, which would affect their reserves and purchasing power. For China, despite the upward revision of growth forecasts, the IMF has announced that there is an increased risk of a sharp economic slowdown, particularly due to the explosion of Chinese debt. In addition, the weak recovery in commodity prices in 2017 and the downward trend in the second half of the year also pose a risk to trade.

Other risks to international trade include political risk linked to tensions between the United States and North Korea, and security risk linked to terrorism, which weighs on the global economy. The second half of 2017 was also marked by a series of hurricanes linked to the hurricane season in the Atlantic Ocean. The cost of these natural disasters may affect the economic growth of the countries/regions affected and, subsequently, investment and trade.

Independence movements in certain countries/regions are increasing the risks to international trade. This mainly concerns the effects of Brexit on the European economy and, subsequently, on the United Kingdom’s trade with the rest of the European Union and the rest of the world, even though the British government does not share President Trump’s protectionist ideas and insists that open trade is a solution rather than a cause of global economic instability. However, Brexit is resulting in inconsistencies and customs and port problems, which require a significant transition period that could therefore affect international trade activity. Other political instabilities are likely to have an impact on the eurozone, notably the tensions between Catalonia and the Spanish government over a possible « Catalexit. »

Finally, a new trend must also be taken into account when studying the evolution of international trade, namely the digitization of the economy, a phenomenon that emerged in the early 2000s following the Internet revolution. Data flows now accompany all exchanges of goods and/or services, thus offering a new dimension to globalization (Olivier Passat, Xerfi Canal). E-commerce is booming, with global turnover from ICT services increasing by 20% between 2012 and 2016. The development of e-commerce is impacting the global economy in various ways. On the one hand, this activity is widening the gap between developed and developing countries, where access to ICT is less guaranteed, and is affecting employment given its impact on physical sales. On the other hand, e-commerce broadens the scope of business by allowing companies to reach previously inaccessible markets and thus expand their international trade. It is therefore interesting to take this new trade trend into account in order to better assess the performance of international trade.

Conclusion

The beginning of 2017 shows some signs of recovery, despite a slowdown in the second quarter of 2017. International trade activity could benefit from economic growth in the United States and the recovery of the Chinese economy and other emerging economies. However, the rise of protectionist rhetoric, the « exit » movements within the EU, and the development of e-commerce are factors that must be taken into account when assessing global trade activity.

Fatma BOUATTOUR

Bibliography

IMF, « Seeking Sustainable Growth: Short-Term Recovery, Long-Term Challenges, » World Economic Outlook, October 2017.

MSCI Emerging Markets Index, https://www.msci.com/documents/10199/c0db0a48-01f2-4ba9-ad01-226fd5678111

OECD, « OECD International Trade Statistics: Trends in the First Quarter of 2017, » OECD Press Release, May 29, 2017.

OECD, « Continued, albeit slower, G20 merchandise trade growth in the Q2 2017, » OECD press release dated August 29, 2017.

WTO, « Latest quarterly trade trends, » September 19, 2017.

WTO, « Trade recovery expected in 2017 and 2018 amid policy uncertainty, » Press release, PRESS/793 TRADE STATISTICS AND OUTLOOK.

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https://www.courrierinternational.com/grand-format/chine-route-de-la-soie-la-mondialisation-selon-xi-jinping