Global trade is flourishing (for emerging markets)

Global trade is flourishing (for emerging markets)

The West has turned hostile to open markets, but trade isn't in retreat everywhere. In other parts of the world, it's flourishing.

The fashionable label "deglobalisation" misses the shift in import and export patterns that has seen emerging markets account for an increasing share of global trade in goods. Not the least of these is China's expanding role as customer, not just a seller. If China's richest person, Jack Ma, is right that the US-China dispute may last decades (I suspect he is), the shift in the centre of gravity will only accelerate.

Trade took a hit in 2008 and has struggled to recover. Global merchandise exports as a percentage of the gross domestic product peaked the month Lehman Brothers failed at 26.5%, according to International Monetary Fund and Haver Analytics data cited by KKR. It rallied after a collapse during the Great Recession, but hasn't fully recovered.

The decline in shipments among developed countries has been most pronounced. Emerging markets tell a more nuanced and optimistic story: They have increased their share considerably, to 20% of global goods trade in 2016, from 8% in 1995, based on a McKinsey Global Institute study.

Among countries of the so-called global north, the share tumbled to 33% from 55%. For the first time, developing nations participate in more than half the purchase and sale of goods, McKinsey said in the report released last week at the World Economic Forum on Asean in Hanoi.

Imports to China play an important role. The world's second-largest economy is shedding low-end manufacturing labour as wages rise, the workforce contracts and consumption, services and technology dominate the domestic scene. Vietnam and Bangladesh are among the biggest beneficiaries. Vietnam may be the last big industrial labour market after China, Fred Burke, managing director of Baker & McKenzie in Ho Chi Minh City, told me over coffee at the WEF gathering.

By 2030, China and India's import growth could surpass that of the US and Western Europe in the 1980s and 1990s, a period many consider the halcyon days of open markets, an era when progressive lowering of barriers seemed like the natural order of the universe.

It's hard to see anything disrupting the trend for emerging markets to gain a greater share of global trade, at least in the medium term. It won't end even if President Donald Trump's tariffs are reversed; his plans to slap tariffs on $200 billion of Chinese goods are almost an asterisk to this long-term shift already set in motion by demographics and rising income in China.

The Trump administration says it's giving American businesses a chance to adjust and look for alternative supply chains by imposing, initially, only a 10% tariff on the batch of $200 billion Chinese goods announced this week. The levy rises to 25% on Jan 1.

That seems like a ridiculously narrow window, given that the supply chains that form the backbone of the world economy developed over decades. - Bloomberg Opinion


Daniel Moss writes and edits articles on economics for Bloomberg Opinion.

Daniel Moss

Bloomberg View writer

Daniel Moss writes and edits articles on economics for Bloomberg View.

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