Since decades, world trade has grown almost regularly faster than global economic output. China & India has now risen to become the world export champion. This was made possible by continuous multilateral trade liberalization, which, however, has stalled since the beginning of this century. Regional agreements currently dominate global trade policy. The move away from multilateralism is also to be understood as a move towards a power-based system. The interests of the weaker trading nations are given less consideration. The volume of traffic also increases with trade, which has ecologically undesirable consequences.

New trends in world trade - or is everything still the same as it used to be?

In the "export nation" Germany, developments in foreign trade as an indicator of the country's economic performance are frequently and extensively commented on. This topic has become even more topical in recent months due to the discussions on Germany's export surplus, which not all trading partners like, and on the "Transatlantic Trade and Investment Partnership" (TTIP), i.e. the planned trade and investment agreement between the EU and the USA. Overall, the long-term trend is clear: not only Germany’s exports but all international trade in the world economy have grown vigorously - even if growth has weakened somewhat in recent years.

The trend is clearly pointing upwards

In the course of the global recession after the outbreak of covid19 world trade also collapsed massively. While global industrial production was a minimum of around 12% below that of the previous year, world trade fell even more sharply at 17%. The recovery in world trade that began in early summer was also somewhat weaker than that of global industrial production.

This is particularly due to the development in China, where exports have increased less than national industrial production so far this year. In the other large economic blocks shown, exports continue to decline. But as the industrial recovery continues, especially in the rest of the emerging countries and the United States, global exports are likely to soon surpass the previous year's level again. The world trade barometer of the World Trade Organization (WTO), which combines several leading indicators for world trade, signals an imminent increase in world trade. In the past, the WTO barometer showed the expected development of world trade quite reliably. The WTO barometer is currently pointing to a very strong recovery in the coming quarters.

In its latest forecast, the Council of Economic Experts for the Assessment of Macroeconomic Development also expects world trade to collapse by 6.2% this year, but is anticipating a recovery of + 5.8% in the coming year.

Long-term development of world trade in goods

Beyond the cyclical recovery in the coming year, the question arises of how world trade will develop in the long term after the corona pandemic has been overcome. Will world trade recover again and grow in line with the world economy, or is stagnating trade in goods to be expected, despite the growing world economy? This question is of crucial importance, especially for very open economies like Germany. In the past there was a strong correlation between the development of world trade and the development of the German gross domestic product.

Numerous emerging countries are also dependent on prospering world trade in order to continue the economic catch-up process and to be able to offer their comparatively young and growing populations prospects.

The development of world trade is closely linked to the development of global value chains. According to a survey, around 70% of world trade takes place within global value chains. Due to differences in equipment or costs, the production of a good is divided among different countries. To the extent that integration into international value chains stagnates or even recedes, global trade in goods is also slowed down.

The regional splitting of the value chains came to a halt even before the outbreak of the corona pandemic. According to WTO calculations, trade in simple value chains, in which an intermediate product only crosses the border once, weakened significantly few years back. One reason for this could be that the wage cost differences compared with the industrialized countries decrease with higher wage dynamics in the emerging countries. As a result, the cost savings when purchasing primary products from abroad are put into perspective and there are fewer incentives for international trade. In any case, only 20% of global trade in goods currently takes place between low- and high-wage countries. Trading in complex value chains in which primary products are processed several times and cross national borders,developed relatively stable recently. With the outbreak of the US-Chinese trade conflict, the number of protectionist trade restrictions skyrocketed. This particularly affects complex value chains. After a partial agreement was reached between the United States and China, the outbreak of the corona pandemic hit the international value chains sensitively. Numerous states imposed export restrictions on medical goods, and corona containment measures by governments and companies led to production stoppages. These disruptions in industrial production could be observed globally and not just limited to individual countries. But even after the pandemic has been overcome, world trade is likely to continue to be subject to structural change.

Private consumption growth will shift noticeably to the emerging markets. Due to the higher population growth, but also the lower supply of consumer goods, the sales markets in the emerging countries are becoming more and more important. Part of the production that was previously exported from the emerging countries to the industrialized countries is now also consumed in the emerging countries. The formation of new trading blocs such as the recently announced RCEP agreement in Asia and Oceania should also strengthen the trend towards production close to the rapidly growing sales markets. World trade will therefore concentrate more strongly than before in the large economic blocs.

In the future, global value chains will be shaped even less by differences in labor costs and more and more by the availability of qualified workers. In knowledge-intensive industrial sectors such as pharmaceuticals, mechanical engineering and information and communication technology, an ever larger part of expenditure is used for non-material assets (e.g. research and development, intellectual property, software). According to calculations by McKinsey, for example, 36% of sales in mechanical engineering were used for expenditure in the area of ??non-material assets. On average for the past few years, the proportion was significantly lower at 29%. In the future, added value will be stronger in research and development,marketing and customer care provided and production costs relatively less important. The increased use of robotics and digitally networked production should also reduce the weight of differences in wage costs. In the future, a larger part of the added value will take place where appropriately qualified workers are available.

The increased use of additive manufacturing such as 3D printing will play a subordinate role in mass production, but in future, for example, spare parts will no longer have to be imported in a time-consuming manner, but can be produced directly and in a standardized manner at many different locations. With the increasing spread of 3D printing, international trade in goods is likely to continue to slow down.

World trade in services

The most decisive change, however, is likely to be the increasing importance of trade in services. The frequently cited slowdown in world trade can only be determined for trade in goods, but not for trade in services. In past few years global trade in services grew by 60%, significantly faster than trade in goods.

In short, services will gain and industrial goods will lose importance. This dynamic growth in trade in services will continue in the long term. After all, the dynamism in the service trade reflects first and foremost the global structural change towards a service society. The share of industrial goods in consumer spending by private households is on a long-term downward trend.

Some years back industrial goods had a share of 33% in the representative basket of goods in the euro area, in recently it was only 26%. In Japan, Germany and the United States, too, declining proportions of expenditure on industrial goods can be observed. In the industrialized countries, additional income is used less and less for industrial goods, but more and more for services. This is also likely to be an important reason why the global number of jobs in the industry has stagnated or decreased slightly for past few years. In China, too, the number of industrial jobs last year was 6% below the high in past.

Technological changes are driving the growth of the international trade in services particularly strongly. The increasing digitization of economic life is creating new business areas and existing digital services are experiencing an increased exchange. According to the McKinsey Global Institute, global trade in telecommunications and IT services grew by almost 8% annually for past few years. The exchange of special business services and intellectual property rights has also increased by more than 5% annually. Special applications in the broad field of artificial intelligence will give the trade in digital services a further boost.

This shows that world trade is influenced by global structural developments. States that are heavily involved in world trade are the first to be confronted with these upheavals. However, this also opens up the possibility for national economic policy to tackle and support the necessary adjustments and reforms at an early stage, so that companies can more easily participate in the new business areas. German and European trade policy is also faced with the challenge of reacting to global structural challenges in the interests of the German economy, for example by creating legally secure framework conditions for resilient supply chains,the creation of modern rules for digital trade or the conclusion of free trade agreements with the dynamic growth regions of the world.

The opening up and growth of these countries also leads to better use of international cost differences in production in so-called global value chains. The production of tradable goods can be globally optimized from a cost perspective and parts can be produced in different locations, which leads to increased imports and exports of intermediate goods and services. For example, Kei-Mu Yi argues in a much-cited research paper that vertical specialization - what one could call global value chains - combined with the dismantling of customs barriers in many countries around the world can explain around 50% of the rapid growth in international trade.

Regardless of the growing importance of the emerging countries, the rankings of the ten most important trading nations (which were responsible for around 50% of exports and imports) have seen only a few but important changes in the last ten years.

Conclusion

Global trade in both goods and services is growing relatively unconcerned. Some aspects point to “business as usual”: Germany and the USA are represented in both types of trade with the three most important exporters and importers. In addition, there are no indications that trade in services has increased disproportionately compared to trade in goods in recent years.

However, this picture lacks a few important changes. On the one hand, there is the importance of the trade in services. Even if this has not increased more in the last few years relative to the goods trade, the growing importance of this type of trade is to be expected in the future. Technical progress plays an important role here. In addition, the possible dismantling of trade barriers in the service sector opens up great potential for trade in this area worldwide.

On the other hand, the rapid rise of China as the most important exporter and second most important importer of goods is evident. But that's not all, China is also an important player in the trade in services. In addition, the importance of other countries in Southeast Asia and India is growing.

The question arises as to whether the effort to negotiate TTIP between the USA and Europe is worthwhile - or whether the actors on the world market are not focusing more on the growing Asian market or the multilateral dismantling of barriers to trade in goods and services worldwide should focus.

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