The state of trade

While members of the World Trade Organisation spend much of their time arguing about potential reforms to the rules of global trade, (or trying to limit the impact of the rules they've already agreed), the secretariat of the organisation in Geneva gets on with the job of overseeing the trade that is already going on.

And the WTO publishes its annual overview of world trade this morning. (You should be able to find it on their website).

For trade boffins, there are a number of interesting things in it. I can't think of just one to highlight, so here are some bullet points to bring you up to date on the state of trade...

1. Trade continues to grow fast, notwithstanding the failures of trade negotiators to agree on new trade rules. World merchandise trade (i.e. trade in manufactured goods or commodities) grew by 15 per cent in 2006. Trade in commercial services grew by 11 per cent. (These figures take no account of inflation).

2. The WTO expects trade to have a rougher time in 2007 as the world economy is expected to grow less quickly than last year.

3. Trade involving the least-developed countries was strong in 2006, with the value of their exports up 30 per cent. This was driven by higher prices for oil and other commodities. But in addition, there was no evidence that China's surging exports of textiles have come at the expense of the poorest countries. For example, exports of textiles and clothing from least-developed countries to the EU grew by 30 per cent.

4. The world's biggest exporter is the US, followed by Germany and then China. Japan is fourth and Britain is fifth.

5. In terms of exports of goods alone (which account for four-fifths of global trade), Germany is the world leader, with the US second and China third.

6. China's exports of goods grew by 27 per cent last year. Indeed, in the second half of 2006 they overtook those of the US showing that as of now, China is probably the world's second largest goods exporter.

7. India's trade performance does not make it one of the big players. It is the world's tenth biggest exporter of services, but only ranks as the world's 28th biggest exporter of goods, with a one per cent share of global exports.

8. A third of Britain's exports are services, the highest proportion of the world's top 10 exporting nations.

Comments   Post your comment

What stands out here is the fact that Germany is the world's leading exporter of goods (Evan's 5th point). It's easy to get the impression that everything we buy nowadays is manufactured in low wage economies and that European and American firms have little chance of competing in such a low-cost commercial environment.

But Germany has high wages and high social costs of employment. So why should it take this leading position?

Two possibilities: concentration on making the high-value advanced capital equipment that enables mass production; value-adding assembly processes close to the market (using mass-produced materials imported from lower-waged economies). Does anyone have other ideas?

  • 2.
  • At 12:52 PM on 12 Apr 2007,
  • Munin wrote:

Hi Evan,

Completely off-topic, but I'd be interested to see your analysis of the debt-based monetary system.

There's plenty of talk about this on the web, mostly along the lines that it should be replaced by something better (eg see the rather long video linked below).

I'm unconvinced. What's your take?

  • 3.
  • At 01:28 PM on 12 Apr 2007,
  • Scott Latham wrote:

And the conclusion is....?

Nice to see we are holding our own.

  • 5.
  • At 03:54 PM on 12 Apr 2007,
  • Mark wrote:

The largest importer is the US. The other day, I heard a European minister comment that a downturn in the US economy wouldn't affect Europe. This is the same siren song I heard in 2000 just before the US economy went into a relatively short mild recession by historical standards. It took Western Europe years to recover, in a sense it still hasn't. Much of Western Europe's "growth" is from repatriated profits of overseas investments such as in China. Domestically, most of Western Europe excluding Britain and maybe one or two other countries is not in good shape. You'd have to be insane to invest in France or Germany. The strong performance of German exports may also be due to export to other EU nations. If the EU is a superstate, this is almost akin to internal trade but Germany has many other problems, not the least of which is its absorption of the former East Germany whose social development and economy barely budged from the Nazi era.

What will a downturn in the US economy bring to Europe and the world? Personally, I think there will be an unexpected domino effect. The US economy is driven two thirds by consumer spending. Personal debt in the US is at an all time high and the government itself is in hock up to its eyeballs. The US has a staggering trade defecit and accounts balance defecit with other nations. What will the US do? Watch the Federal Reserve, the financial ruler of the world. There are at least two ways it can go I can think of. It can do what it's done often in the past, print money like it's going out of style wiping out the value of most debt and bringing a round of inflation (Greenspan never would have let this happen but he's gone) or it can go into recession by raising interest rates and slowing down business. Depending on which it does, some countries or others will feel the effect like a boulder falling into a pond creating a tsunami. Inflation will devalue the massive foreign currency holdings by China for example. Recession in the US would also hit China hard by reducing demand for its mass produced cheap junk consumer products it thrives on. This could cause a social upheaval there. This of course would reduce profits to companies invested in China such as those bringing profits back to the EU (and the US.) Will the US put up protectionist tarriffs? There is a lot of domestic pressure to do so. The US filed two claims against China this week with the WTO and it is already waging a trade war with Europe by keeping the dollar weak and the Euro strong. It's a trade war the US is already winning. There are storm warnings ahead. Sailor beware.

Great Evan; I just love stuff like this - interesting international comparisons show the ''Old UK'' still packs quite an economic punch.

The WTO stats (Trade Profiles) linked from The BBC site are really interesting too - but its a great pity the stats are completely distorted by showing the ''EU25'' as a block - it would be much more informative if the WTO broke down the figures properly.

What happens when the rest of the known universe eventually belongs to the EU - the figures will be even more barmy as 100% of everything, including the kitchen sink will all be thrown in.

  • 7.
  • At 06:55 PM on 14 Apr 2007,
  • Andy wrote:

It would be good to see Evan going back a few weeks to explaining everyday events through economics in this blog. I dont understand economics on a world or financial scale, but found the earlier blog entries easy to understand, good to read, and very informative!

  • 8.
  • At 07:12 PM on 14 Apr 2007,
  • Mike Dixon wrote:

Today it is hardly realistic to compared Germany with the United States as if one was comparing like with like. Germany is a major part of the Euro Zone, of the European Community and of Europe as a whole. However what gives the most realistic picture. Is it to compare the external trade of the U.S.A. with the external trade of the Euro Zone or of the European Community as a whole?

What Mark says in his commentabout the present state of the United States economy is of course well known. However you do not win a trade war by by keeping your currency weak. In the long term you lose it, particularly if it is due to structual weakness within the country concerned. Externally the greatest risk to the dollar is that the Euro is increasingly become an alternative reserve currency.

Martin, both these factors you name are true. However, Germany has kept its labour costs quite low for the past decade (relative to EU) which explains the recent expansion in Germany.

See page 4 of this presentation

  • 10.
  • At 03:32 PM on 16 Apr 2007,
  • Albert wrote:

The trouble is the figures are not adjusted for happiness are they, and the global trade of happinness is what the WTO is supposed to worry about and manage these days isn't it.


1) Where is the Happiness Appendix?

2) Why is the WTO keeping it secret?

  • 11.
  • At 06:28 PM on 17 Apr 2007,
  • Laurie wrote:

what goes around comes around.Beware!!

  • 12.
  • At 10:56 PM on 17 Apr 2007,
  • Mark wrote:

I'm wondering if the US hasn't been waging a kind of economic war against Europe and has China as an ally. The relationships are complex but I could hardly imagine what more the US could do to wreck the French economy than what it is doing now along with China. America basically turned the whole gameboard upside down by opening up China, making massive investments in it, and put it along with Europe on a level playing field. Its impossibly low cost of labor, complete lack of worker, consumer, and environmental protections have made its cost of production of inexpensive manufactured manufactured goods negligable by comparison to Europe's, and its long history of mercantilism fully exploits it while despotism guarantees it won't change anytime soon. France has every possible disadvantage against this juggernaught. I think the idea is to pull France down and expect it to take the rest of the EU economies with it, at least those which rely on the Euro. It seems to be working. One more tap on this eggshell and she should crack. It might be a crisis in the middle east sending oil up to $150 or $200 a barrel or a slowdown in the US reducing domestic consumption and triggering dumping of vast quantities of Chinese made goods at even lower prices than we see today on Europe's domestic market. I'm watching the elections in France very closely. If Royal wins....its over.

  • 13.
  • At 07:16 PM on 18 Apr 2007,
  • Bob wrote:

Actually the productivity of Chinese workers are still far behind that of the developed countries so it does not make sense to outsource every single factory in China. Costs may be low but there are still so many other factors that need to be considered. This is highlighted by the fact that Germany is the world's largest exporter of goods. That is German efficiency for you.

On top of that it would be hard to claim a dumping charge against the Chinese firms. What is dumping? Dumping isn't merely the sale of goods at an extremely low price, because what we may perceive as being a low price may not be low for the firm producing these goods or services. Dumping only occurs and can only be proved if the costs of production are much much higher than the prices of the goods. So to be honest dumping is like destroyer pricing on a large scale, which to me doesn't make sense because it means incurring huge losses just to remove the indigenous competition. I don't think many firms are that stupid. If this were the case then dumping firms would either go out of business extremely quickly, or they will remove the competition extremely quickly and use its new found monopolist power to raise prices at a lower output. Neither seems to be the case for Chinese goods in Europe, not even in the textile industry.

What's more of a concern is the pegging of the Chinese Yuan in relation to the US Dollar. By buying US reserves the Chinese are able to keep their currency artificially low to keep its exporters happy and continue to sustain its astounding economic growth. The effects are already being seen, the US Dollar is depreciating and we here in the UK and EU will experience the effects soon enough.

  • 14.
  • At 09:37 PM on 23 Apr 2007,
  • Mark wrote:

Productivity of Chinese workers compared to say American workers stinks. But, there are huge advantages to producing in China. It all boils down to cost. Anyone not familiar with American industry first hand might not guess the restrictions it operates under especially domestically. While benefits are not as great as Europe's, costs on a per hour basis are high. Then there is OSHA, the Occupational Safety and Health Administration which has regulations for every kind of work to assure a safe work environment. Don't comply and get fined. Don't comply and someone gets hurt and get sued in the most litigeous society in the world as well. Injure or kill workers in and industrial accident in China and they throw the body out the back door with the rest of the trash while they bring new help to replace it through the front door. Then there is EPA the Environmental Protection Agency. Spew pollutants into the air (I'm not talking about CO2) and get fined. Someone claims they were injured by it and get sued too. Poision the air and water in China with industrial polution and people get sick or die...well nothing happens. And there are tons of other restrictions and regulations which make it advantageous to ship our worst jobs to China. It was far cheaper to ship these dirty, dangerous, boring, low paying jobs to China and the factories that go with them than to clean them up and make them safe. Large European firms had no choice but to do the same if they wanted to survive. But the US has become a post industrial society and found a niche in selling brainpower instead of hand power and backpower. While the products are made in China, they are invented, perfected, and engineered in the USA and management is sent to China to train and supervise Chinese to assure products meet US customer expectations. Where is Europe's new niche? It doesn't have one. That's why it is going broke. No Intels, no Microsofts, no IBMs, No Apple Computer, and its answer to Boeing which is Airbus is a big unwieldy government bureaucracy which is turning into a first class joke. Were I in the market for a luxury automobile, I'd probably buy a Lexus, Infinity, or an Accura before I'd buy a Mercedes or a BMW. Mercedes thought they'd screw Chrysler. Talk about a plan backfiring. Couldn't happen to a nicer more deserving bunch.

  • 15.
  • At 12:26 PM on 07 May 2007,
  • Stuart wrote:

The UK has very high exports of services, these are mainly in the banking sector. The City is the first obvious source with metal traded in pounds and the City as a less regulated place to raise finance than NYSE and so on. The UK then has one major player of the Microsoft+ league right there.

British banking is very global, my audited report from Standard Charter states intra Asian trade is greater than US EU trade. The bank does a lot of business in foreign Exchange (FX) and has a special section involved in ChineseAfrican Trade.

China is making some extremely good products today and at very low prices. The problem is not the buying of foreign products, it is what we do with them. I read recently that the average drill is used once and lost in the garage and another purchased when the next DIY job is to be done. If we were to use what we buy until it breaks and only replace then, we would have lower cost imports (eg China against Germany or Japan). The problem is we over consume and suck in too many imports. My Chinese and British made Makita equipment is still going strong on our second full house renovation. We have done well in housing and by buying the minimum possible and often the cheapest from China we don't have much mortgage either.

We also have invested heavily in banking shares (among others) and have a good strong passive income.

China is the factory of the world at a bargain basement price. Imagine if we only bought what we needed from them and saved a bit more! Then slowly learned to invest wisely, pound over valued - how amount buy Chinese save 50%, put 50% saved in good US shares, which are at an effective 15%+ discount. So the average Joe had a share of the great US powerhouses?

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