In today’s economy, people are used to seeing products originating from different parts of the world and perhaps taking them for granted. International trade provides great choices and comfort in our lives. From fruits in grocery stores to cars driving around the streets, many daily products we use have a good chance of having been imported to that country. Globalization has made international trade easier and more feasible, and this can have great benefits for economies. Import and export activities can have impact on a countries GDP, inflation, exchange rate, interest rate, consumer prices, and many more.
What is the global change in import/export?
According to the UNCTAD’s (United Nations Conference on Trade and Development) global trade update (17 February 2022), Global trade in goods remained strong and services returned to their pre-pandemic levels. The report says “Overall, the value of global trade reached a record level of $28.5 trillion in 2021”. This is an increase of 25% from 2020 levels and an increase of 13% from 2019, before the pandemic. Last year, most of the global trade took place in the first half and that progress continued in the second half as well. While the third quarter of 2021 was relatively slow, the growth rate picked back up as we entered the final quarter when trade in goods increased by more than $200 billion reaching a new high of $5.8 trillion. At the same time, international trade in services has also risen by $50 billion to reach $1.6 trillion, again, above pre-pandemic levels. Below, you can see some countries and regions and their trade sums in 2019 and 2021 sorted according to their trade balances.
Nevertheless, even after the pandemic recovery, the trade world has taken many hits. The war in Ukraine was a major factor in that with both nations being very active in commodity exports, a significant supply shortage and logistical difficulties arose.
Many commodity prices are rallying and for exporting countries that is very favorable for the economy, however, that is not the case for dependent countries. Higher prices of energy, food, and metals can become a burden in the development of these economies.
In today’s world, where commodity prices are at historically high levels, countries must either be producers of these commodities or are capable of processing and exporting them, in order to make up for the import costs to the economy. The economic complexity of a country is the measurement of how capable a country is of processing and manufacturing unique goods to export them. Below, you can see a map illustrating the complexity levels of countries based on the economic complexity index;
The higher the complexity, the more capable an economy is of processing and exporting unique goods to the world. As you can see, China and the US are relatively strong in the index which was quite predictable considering the developed industries and manufacturing capacities of these countries.
However, that is not the case when we focus on the African region. Africa is very rich in natural resources with 30% of the world’s mineral reserves, 8% of the world’s natural gas, 12% of oil reserves, 40% of gold, up to 90% of chromium and platinum aside from significant reserves of diamond, uranium, cobalt, and platinum. Considering these facts, it is understandable that they are very dependent on their exports and not as developed in adding value to these raw materials.
Times are unprecedented and international physical trade is suffering from it. Political issues are disrupting supply lines such as the Black Sea, a very important trade, and transportation artery. Following the sanctions by the western countries, Russia is blocking shipments in the sea causing significant disruptions in exports, especially grains. The issue is also an exacerbator of the current food crisis that the world is witnessing.
What is the situation in Europe?
In the previous year, a strong recovery was recorded in the extra-EU trade values following the drop in exports and imports registered in 2020. EU recorded an increase of 23% in imports and 13% in exports.
When we look at the long term, import and export values over the years have had an upwards trend with only a few exceptional years. In the last decade, the export growth rate of Europe peaked in 2011 at 13% and continued the positive trend until 2016 when a drop of 0.5% was witnessed. The positive trend continued until 2020 when a sharp fall was seen with 9% as COVID-19 hit. The import growth rate was not much different from that of exports, although relatively more fluctuating, following a similar trend. In 2020, imports saw a growth of 12%.
When it comes to the trade balance of Europe, in 2021 they recorded a surplus of €68 billion. This is considered poor performance on the European end as it is the lowest surplus since 2011 when a deficit of €42 billion was recorded. The poor surplus numbers were driven by the increasing value of energy imports towards the end of 2021. During the last year, sharp increases in the trade deficit were seen especially in November and December. In the last decade, the trade balance of Europe recorded a continuous surplus, with a peak in 2016 at €264 billion. This gives an idea of how the trade recovery of Europe was noticeable but nowhere close to their top performance. A decreasing trend was seen after 2016 (2017 – €222 billion, 2018 – €148 billion) with that trend breaking up in 2019, right before the pandemic, in which they recorded a surplus of €191 billion.
Germany, the largest economy and the powerhouse of Europe, is alarmed as it recorded a deficit in trade for the first time in more than 30 years. With global trade disruptions exacerbated by the soaring energy prices, in May, Germany recorded a deficit of €1 billion. According to Chancellor Olaf Scholz, the current situation is a historic challenge that will not pass over the next few months and that the Ukraine war has changed everything.
Agricultural commodity prices are rising at a very rapid rate but it is not a great issue for Europe. Rising inflation and consumer prices are becoming a weight on the shoulders of Europeans, however. European agricultural trade surplus was expanding at a strong rate since 2008. The continent is largely self-sufficient for many agricultural products; thus, the rising food prices are not as big an issue to the region as they may be to other parts of the world.
Imports of Ukraine increased by 2.7% reaching €126.7 billion from April to May whilst month-on-month exports saw a decrease of 0.5% to €125.8 billion according to data by the Federal Statistical Agency.
Looking generally, soaring energy prices have boosted European import growth. Exports have expanded by 3% and imports by 5% in the European Union. Below are the changes in export and imports of some major countries in Europe (data collected from the OECD);
What is the situation in America?
The trade deficit of the US has decreased to $87.1 billion in April 2022 following a record of $107.7 billion in March. Their exports were up 3.5% to a record of $252.6 billion which was led by mainly natural gas, other petroleum products, soybeans, and travel and transport. At the same time, their imports declined 3.4% to $339.7 billion due to lower purchases of textiles, household goods, games, toys, pharmaceutical preparations, industrial supplies and materials, capital goods, and electronics. The deficit of the US with China decreased by $8.5 billion to reach $34.9 billion caused by decreased imports (-$10.1 billion) as China’s demand is disrupted by lockdowns are restrictions. The gap with Russia has lost pace and continued to narrow to 2 billion from $2.6 billion.
The United States has had consistent trade deficits for close to 30 years due to the high imports of oil and consumer goods. Their largest trade deficit was recorded in 2018 with China, Germany, Mexico, Japan, Italy, Ireland, and Vietnam, and the largest trade surpluses were with Netherlands, Hong Kong, United Arab Emirates, Belgium Brazil, Australia, and Panama. The most significant trading partner of the US is China, owning 16% of their total trade followed by Canada and Mexico, both with 15% shares.
Below, you can see the monthly trade balance over the past 5 years of the United States. There is a clear downward trend but perhaps recovery is on its way.
According to the US Bureau of Economic Analysis (BEA), the annual trade deficit of the US was $859 billion in 2021. The United States imported $3.4 trillion in goods and services, approximately half a trillion up from 2020. Exports were recorded at $2.5 trillion with an increase of $394 billion from 2020. The trade deficit of last year was significantly higher than that of 2020 ($676.7 billion). The COVID-19 pandemic and issues in supply chains caused dramatic impacts on imports in 2021. The current deficit of the States has set a new record, surpassing the previous mark of $736.5 billion in 2006. Coming to 2022, in the first quarter, the trade deficit was recorded at $288.8 billion, ahead of the first quarters of 2020 and 2021.
Canadian exports have increased by 4.2%in the first quarter of 2022, which was driven by the energy, forestry, and record-breaking volume of fertilizer exports. Imports on the other hand increased by 1.3 percent as the automotive sector slowed down. Mexican exports expanded by 5.2% and imports by 6.9% in the first quarter of 2022. Again, high energy prices and vehicles and parts have accounted for that expansion in exports.
When it comes to the southern side of America, China is the top player. The region is very rich in metals and China is, by far, the largest metals importer in the world. The map below illustrates the percentage share China has on the total goods traded among the countries.
It is important to mention that a significant amount of investment has gone into South America from China, expecting cheaper future metal prices and easier access to supplies. Energy is a major reason for this bilateral partnership as South America is not very rich in energy resources and China has also invested in energy production in the region
What is the situation in Asia?
Asia is the factory of the world with low manufacturing costs and tends to perform well when it comes to trade balances. However, with the pandemic, trade and manufacturing were more complicated than they used to be and things went sideways for many Asian countries as lockdowns and restrictions came into play, especially in China. They have recovered quite admirably from the pandemic, however, recently many disruptions to its industries have been witnessed. Additionally, sanctions imposed on Moscow by the western countries also damaged trade around Asia quite significantly.
Starting from perhaps the most important economy, China. They have recorded a surplus of $78 billion in May this year, a big jump from $43.28 billion in May last year. This was the largest figure that China has seen in this half of the year as authorities have backed down on COVID-19 control measures in Shanghai and Beijing. Year on year, exports grew by 16.9%, mainly driven by growth in the past 4 months up to May, caused by the resuming of factory productions and easing logistical circumstances. Imports also rose by 4.1%, picking up from stagnation in April as demand on the domestic end has recovered. When we look at the first 5 months of this year, the trade surplus was $290.46 billion, exports rose 13.5% and exports 6.6%. The trade surplus with the US has jumped to $153 billion.
Chinese exports have expanded by 4.7% in the first quarter of this year as strong steel and plastic sales were recorded as well as steady shipments of electronic goods. Imports, however, increased by a slight 0.3%. Although rising energy prices have been driving their imports up, it was offset by the decline in iron ore imports.
Since 1995, Chinese trade has been recording a surplus continuously. Last year, their trade surplus hit $676.43 billion to become the highest since 1950, up from $523.99 billion in 2020 as their exports have surged by over 20 percent boosted by the post-COVID recovery. Below is the trade balance of China over the years on a monthly basis;
India, on the other hand, recorded an all-time high trade deficit of $25.64 billion in June of 2022. Indian imports jumped 50.1% year on year to an all-time high of $63.58 billion amid the global commodity price rally. Exports increased at a slower pace by 16.8% to $37.94 billion as weak growth prospects and global economic uncertainty weighs on demand. In the first quarter of the fiscal year ending June, the Indian trade deficit increased over 100% reaching $70.25 billion from $31.42 billion the year before. In Q1 of this year, Indian exports fell by 0.9% and imports grew by 4.6%
As mentioned before, many factors come into play in the trade performances of countries. Japan, due to chip shortages weighing on shipments of vehicles and their parts, exports only increased by 0.8 percent in the first quarter of 2022 while energy and raw material prices boosted their imports by 7%. For Korea, exports have been fueled continuously by electronics, COVID-19 test kits, and electric vehicles and increased by 3.8% in Q1 of 2022.
To conclude, we can say that the imports and exports of countries have been subject to a lot of impacts due to the pandemic. Nevertheless, the pre-covid pace in trade has returned and the recovery from the pandemic, taking into consideration countless other events that impacted trade in the past 2 years, was quite rapid. Although seemingly volatile, international trade is relatively stable as it is a requirement in today’s world so that every country has a variety of food supply, healthcare products, construction materials, fuel, etc. The big and impactful events that tend to damage the trade balance of the world, tend to not have a long-term effect on import and export markets, hence, the robust recovery from the pandemic.
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