International trade is basically the exchange of goods and services across international borders or territories. This usually allows countries to expand their markets for both goods and services that are not available domestically. Often times this boosts the GDP, raises competition between businesses, raising competitive prices, quality products and cheaper products for consumers. Stakeholders usually benefit from sales that normally would be unattainable from the domestic market alone. The acquisition of foreign currency also means the ability to purchase commodities from other foreign countries.
Over recent years, the world has evolved and more and more countries are moving away from their traditional economies and more into structures of developed markets. This means they possess some characteristics of developed economies but haven’t met full standards to be named as such. They still have low to middle per capita income and are still called developing countries. Some of these countries include China, India and some Eastern European countries.
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By 2005, the market share for China and India exports was 13.4% with most of the contribution coming from China. This same figure as of 2017 represents China alone. India on the other hand had a 3% share as of 2015. Eastern Europe was under the trade policy of the Soviet Union that sought to restrict international trade with market economies. With the liberation and reforms, the region opened up for trade and economic growth.
By 2005, China was the 2 nd largest exporter of manufactured goods, with 9.2% of world exports and had far outperformed all other emerging economies. India on the other hand was still under 1% in 2005. The two countries also had a significant increase in the importation of primary products. In China for example it rose from less than 1% to 6.4% in 2005. Products such as iron ores and non-ferrous ones and raw agricultural products. In India the figure rose to 3.4% in the same year. This sudden surge meant that exporters of said products had an increase in revenue. On the other side, their sudden increase in exporting manufactured products meant that there was more international demand for manufactured products.
China also changed the labour division on a global scale. Most firms from developed economies now rely on China for most of their labour-intensive production processes. This meant that China rose as an exporter of manufactured goods and a decline of countries like Japan and the United States as the same. China also became the major trading power in the region, overtaking Japan and its share in intra-regional trade rose to about 25% as of 2005 ( Shelburne, R. C. (2010)).
Eastern and Central Europe also became the backbone of manufacturing in the region after the economic transition and integration into the European Union (EU). A lot of structural change occurred at the time and gradual removal of barriers to trade and international capital flows. The region has very tight integration with regional global value chains (GVC’s)and a high degree of vertical specialization in the production of intermediate goods (Hummels D., Ishii, J., Yi, K. M., (2001) ). This made them very key in the manufacturing sector.
Exports from these regions have more than doubled relative to their Gross Domestic Product (GDP) in the last two decades, and also a substantial increase in imports. The role of exports was felt mostly for countries that converged and dominated the export market in Europe. This saw the share of exports in the overall economic growth in these countries in the range of 70% in Czech to slightly over 85% in Slovakia. This was much higher in comparison to the Western Developed countries. The links had a significant impact in Poland, Slovakia and Czech, responsible for roughly 20% growth of the GDP between 2003 and 2014.
The future seems bright for the developing countries in the international trade market as the potential for growth is very high compared to already developed countries that have seemingly already slowed down. A recent summit held between the leadership of China and India for example about setting up a high level economic and trade dialogue looks promising. This was to discuss trade imbalances, investments and services related to the trade deficit between them and the Regional Comprehensive Economic Partnership Agreement (RCEP) that has been pending since 2012.
India may be one of the few economies that can provide leadership in international trade as the US President Donald Trump seems to have ditched multilateralism. The European Union (EU) seems focused on BREXIT and China is currently caught up in a trade war with the United States. India being the 6 th largest economy and the fastest-growing of any of the large economies may place it at the epicentre. It is trying to expand its foreign trade policies and increase its exports from 2% to 3.5% by 2020. It has also improved by 23 positions in the World Bank ranks for ease of doing business. Private investments are expected to grow by 8.8% by the end of the current financial year 2019, and private consumption by 7.4%.
As for China, while the GDP is rising and is currently the second-highest in the world, the trade war with the United States makes the future unsure. From IP theft issues to state subsidies which are fundamentally how the socialist model works. Simple everyday tasks like sending emails or using credit cards have become harder in the country due to the fall out with American tech companies. Couple that with the government putting most of their eggs on the technology basket to get ahead while showing how superior the Chinese model is (Goodman, P. S.).
In conclusion, the trade war seems to be felt across the board, while BREXIT gives a lot of uncertainty about the future on the European front as the trade policies tension begins to rise and some even fear for a global recession. We will have to wait and see how this goes.
References
Goodman, P. S., (2019, October 1). Global Trade is Deteriorating Fast, Sapping the World’s Economy. The New York Times.
Hummels, D., Ishii, J., Yi, K. M., (2001). The nature and growth of vertical specialization in world trade. Journal of International Economics. 54(1) 75-96.
Shelburne, R. C. (2010). The global financial crisis and its impact on trade: The world and the European emerging economies. United Nations Economic Commission for Europe- Discussion Paper Series, 2.
