During the past decade, growth in world trade has been sluggish, with the feeble economic performance of the Eurozone, slowed economic growth in China, lower commodity prices, increasing protectionist measures, and a stronger US dollar. This decade's prolonged period of trade deceleration has occurred after about three decades of rapid growth in trade resulting from an increasingly liberalised global environment. However, globalisation and free trade policy regimes have been at a crossroads in the 2010s.
In this context, after a prolonged global trade slowdown for six long years since 2011, global trade flows registered some encouraging signs of momentum in 2017 and 2018. Total exports of goods and services in 2017 increased by US$2.0 trillion over the previous year, reaching US$22.8 trillion. The global trade growth rate, however, remained much lower than that achieved in 2011 (9.7 per cent in 2017-2018 against 18.8 per cent in 2011). Against this backdrop, a revival of sustained trade growth would reinvigorate the 'trade engine' to drive economic growth and development in many low-income and vulnerable developing countries.
It was the 2008 global financial crisis that initiated the economic downturn across the world but a wide range of cyclical and structural factors have resulted in the persistence of the global trade slowdown. The cyclical factors of the recent trade slowdown around the world include the post-crisis recession, weakened prices of commodities and energy resources, and faltering economic performance of the large developing countries such as Brazil and China. The structural factors include the protectionist measures undertaken by major economies, China's restructuring of its economic priorities and the recent escalation of the China-US trade tension. After the global financial crisis in 2008, most of the major economies in the world, including the large developing countries and developed nations, undertook several protectionist measures: more than 800 protectionist interventions per year were undertaken worldwide, and, since 2012, on an average, World Trade Organisation (WTO) members have introduced 13 trade-restrictive measures per month. As a result, large economies such as the USA and China have initiated the consolidation of the value chain activities in production and trade, which has created a preference for domestic inputs rather than imported inputs.
Among the structural factors, one of the most prominent contributors to sluggish trade growth since 2012 has been the rebalancing of China's economic activities. China has settled onto a lower economic growth path and has undergone a rebalancing of economic activities. In the aftermath of the 2008 global financial crisis, the largest trading partners of China - the EU, Japan, and South Korea - experienced meagre economic growth and reduced their import demand. Additionally, in recent years, US trade barriers have led several of China's trading partners to decrease their import demand for China's exports. In the face of this dwindling import demand from developed countries and in the aftermath of the global financial crisis, in the 12th Five-Year Plan (2011-2015) China prioritised the domestic market by taking measures to promote domestic consumers' demand. It also attempted to regulate investments to avoid slumps and focused on consumption and services instead of investment and manufacturing sector, which had been the priority in the previous decade. China's economy during 2001-2010 can be characterised as an investment-driven export-oriented economy; since 2012, it has been transforming into a consumption-driven economy. Another important reason for the recent economic slowdown in China is the changing labour market. One of the crucial catalysts of China's economic success was the low wage rate. However, as a result of the One Child Policy of the 1980s, China now has an ageing population, which has shrunk the labour market and raised the wage rate. In addition to reducing worldwide import demand, this has played a vital role in China's economic slowdown.
China's economic rebalancing and its slow growth have had a wide array of effects worldwide, especially for countries that export a large share of their merchandise and services to China. According to the International Monetary Fund (IMF), countries dependent on China will experience a 0.3 per cent contraction of their gross domestic product (GDP) as a result of China's economic slowdown. Another policy undertaken by the Chinese government that has important adverse implications for exporting countries has been the devaluation of the renminbi by about 2.0 per cent against the US dollar since 2015. China's economic rebalancing and currency devaluation, the consolidation of global value chains and declining commodity prices as a result of reduced import demand for raw materials have led to trade policy reversals in major developing countries. China's sluggish economic growth may also affect different regions of the world in different ways.
TRADE PATTERN OF COMMONWEALTH EXPORT: The Commonwealth export of goods and services has expanded more than nine-fold over the past four decades, from US$0.39 trillion in 1980 to US$3.6 trillion in 2018. It was the largest during the 2001-2011 period, when it increased from US$1.26 trillion to US$3.46 trillion. However, from 2011 total exports from Commonwealth regions declined until 2016; this was followed by a slight recovery during 2017 and 2018. While merchandise and services trade of the Commonwealth countries during the past decade has been almost stagnant, total exports of goods have declined from US$2.6 trillion in 2011 to US$2.5 trillion in 2018.
Commonwealth Asian countries are made up mostly of the Commonwealth Least Developed Countries (LDCs) including Bangladesh. The rates of economic and export growth of Commonwealth Asian countries during the sluggish years (2012-2016) were 5.5 per cent and 2.3 per cent, respectively, the highest among the five Commonwealth geographic regions (Asia, Caribbean, America, Pacific, Europe)
Among the four important Commonwealth regions, we observe that LDCs' exports of goods and services (g&s) grew almost undisrupted over the four decades, even though the rate of expansion reduced slightly from 2011. Both Small Island Developing States (SIDS) and SSA's trade grew the most during the 2001-2011 period; trade was adversely affected by the global financial crisis during 2009 but this was followed by a quick recovery. After 2011, while SIDS exports slowed, the total volume of exported goods and services declined for Commonwealth SSA. In 2001, the Commonwealth SSA export volume was US$78 billion; this increased significantly to US$311 billion in 2011. However, between 2011 and 2016, exports from this region declined by almost US$100 billion to US$212 billion.
Another Commonwealth region that saw a tremendous expansion in trade during 2001-2011 is Small and Vulnerable Economies (SVEs). During the period, exports grew from US$40 billion to more than US$109 billion; this was followed by a decline of US$14 billion to US$95 billion in 2016. We also see that, during 2012-2016, merchandise exports suffered much more than goods and services exports for both SVEs and SSA. Hence, we can conclude the most adversely affected Commonwealth area in terms of trade is SSA, followed by SVEs. From this perspective, the 2011-2016 period can be seen as a lost decade of gains from trade for the Commonwealth SSA countries and the Commonwealth SVEs. Nevertheless, both of these two groups saw a slight recovery during 2017-2018.
Figure-1 has been constructed utilising UNCTAD stat 2020 and the IMF WEO dataset for 2020. For world trade growth rates after 2018, IMF predicted values are used; for Commonwealth trade expansion rates after 2018, values have been estimated using UNCTAD stat. From Figure-1, we can observe that, even though in 2017-2018 the world trade growth rate was slightly higher (3.4 per cent) than in the post-global financial crisis years (2012-2016) (an average rate of 3.13 per cent), it is still much lower than the long-term average growth rate of 5.7 per cent.
In 2019, world trade registered an annual growth rate of only 1.13 per cent, one of the lowest rates of the past two decades. Only during the year of global financial crisis was the trade growth rate lower than this, at -10.4 per cent. According to the IMF projections, during the next five years, global trade expansion will experience slower momentum. The projected growth rate for 2020-2024 is 3.67 per cent, much lower than the long-term (1980-2010) average rate of global trade growth. If these projections turn out to be correct, 2012-2024 could be the slowest trade expansion decade (3.4 per cent) since World War II.
Figure-1 also shows that world trade registered the highest average rate of growth in the 1990s, at 6.6 per cent per year. Despite the global financial crisis, the average rate of trade expansion in the 2000s was more than 5.0 per cent, largely because of high trade growth during the early 2000s and a sharp recovery in 2010 and 2011, following the impact of the global financial crisis. Since 2012, the global trade slowdown has persisted. Figure 4 suggests that global trade has not grown faster than the average growth rate for 1980-2010 in one single year since 2012.
Figure-1 further provides us with a picture of Commonwealth trade expansion for the past four decades. Exports of merchandise and trade by member countries increased consistently for three decades from the 1980s. The most robust trade growth registered was a yearly average rate of 10 per cent during 2001-2011. Despite a high average growth rate of 7.3 per cent for three decades (1980-2010), in the 2010s Commonwealth trade has stagnated at only 0.9 per cent, and that only because of a trade growth recovery during 2017-2018. Between 2012 and 2016, Commonwealth trade was severely disrupted and experienced a contraction at 2.4 per cent per annum.
Figure-1 shows that Commonwealth trade expanded at the highest rate, of 10 per cent per year, in the 2000s, partly because of the stellar economic growth of China and its consequent import demand for a large amount of goods and raw materials. According to our estimates utilising UNCTADstat 2020, during the next five years Commonwealth trade expansion will experience slower momentum. The forecast growth rate for 2020-2024 is 4.22 per cent, much lower than the long-term (1980-2010) average rate of Commonwealth trade growth, at 7.5 per cent. If the forecast expansion rate is realised, 2012-2024 will be the most sluggish decade for trade growth (at 2.95 per cent) since the 1970s. However, one gleam of hope lies in the recent (2017-2018) performance of Commonwealth trade, when exports grew at a rate of 9.7 per cent per year, much higher than the long-term rate of 7.5 per cent. Nevertheless, world trade has remained sluggish, growing at only 3.6 per cent during 2018, lower than the long-term global trade growth rate of 5.7 per cent.
Dr Syed Mortuza Asif Ehsan, Assistant Professor, Department of Economics, North South University, Dhaka, firstname.lastname@example.org
Dr Salamat Ali, Economic Adviser-Trade Economist, Trade, Oceans and Natural Resource Directorate at the Commonwealth Secretariat.