Asian exports engine needs a push for liberalization
Shanghai Daily, December 16, 2013 Adjust font size:
Loud cheers in Bali. While meeting under the soothing shade of palm trees on the island, trade negotiators finally reached a deal — the World Trade Organization’s first in its 18-year history.
Yet, the Bali agreement may not be all that. The 160 representatives only managed to agree on improving customs procedures, leaving more substantive things for another time.
Still, by some estimates, the deal may generate a cool US$1 trillion in global trade. Hopes are also high that the ice is finally broken and that many more cheers might follow.
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Foreign ships are busy unloading at the Qingdao Harbor, Shandong province. The International Monetary Fund predicted in October that world trade will grow by 4.9 percent in 2014, compared with 2.9 percent this year. [Yu Fangping/ for China Daily] |
![Foreign ships are busy unloading at the Qingdao Harbor, Shandong province. The International Monetary Fund predicted in October that world trade will grow by 4.9 percent in 2014, compared with 2.9 percent this year. [Yu Fangping/ for China Daily]](http://images.chinagate.cn/attachement/jpg/site1021/20131216/0019b91ec9321418a02501.jpg "Foreign ships are busy unloading at the Qingdao Harbor, Shandong province. The International Monetary Fund predicted in October that world trade will grow by 4.9 percent in 2014, compared with 2.9 percent this year. [Yu Fangping/ for China Daily]")
About time. The global trading system is in dire need of a shot in the arm.
Stalling trade
After growing at twice the pace of global GDP for decades, trade has stalled of late. That’s a worry, not least in Asia where exports have laid the path towards prosperity.
Globally, trade has rebounded from the dark days of 2009, but it is still below its all-time peak reached the year before. In Asia, exports as a share of GDP have fallen even more sharply, with a more muted recovery to boot. Our first point, therefore, is that the stall in the global trade to GDP ratio reflects in large part a drop in Asia.
Let’s take a closer look at this. Exports as a share of GDP have actually gone up in the past couple of years compared to the mid-2000s in the West and a number of Asian markets. But, in Malaysia, the Philippines, Indonesia, Japan and China shipments have dipped. In Japan, this may reflect in part the disruptions from the devastating tsunami, and could thus be seen as a temporary aberration.
But China is a little more curious. The country, after all, has been the main driver of globalization over the past 15 years, with its accession to the WTO in 2001 further accelerating its integration into global supply chains.
So what’s going on? Well, it’s not because Chinese exports have collapsed. Rather, GDP simply grew faster, depressing the ratio of shipments to GDP. Without trade to drive its economy, China switched to investment. Unfortunately, for the rest of the world, China’s investment isn’t very import intensive (it is only for some goods, like iron ore or certain construction machinery), explaining in part why global GDP went up but trade growth slowed.
When comparing the growth of exports from emerging Asia and the region’s output growth, overall, there has been a close association of the two series over time.
But a divergence is under way currently. Since about 2010, exports have lagged growth in industrial production. This is consistent with our previous finding that Asia (especially China) has turned inward, with growth driven more by investment than exports.
