Appendix 4: New Drivers of Global Trade: Key Stylized Facts
- Nagwa Riad, Luca Errico, Christian Henn, Christian Saborowski, Mika Saito, and Jarkko Turunen
- Published Date:
- January 2012
Changes in export composition by trading partner strongly reflect the emergence of EMEs (Figure A4.1). As a consequence, those countries more strongly exposed to EMEs generally experienced higher trade growth. Some, though not all, of China’s rapid export growth can be explained by a higher exposure to EMEs. With EMEs also expected to spearhead economic expansion going forward, deepening trade relationships with EMEs would further aid countries’ export performance.
Figure A4.1.Export Composition of Simulation Countries by Destination
Source: Global Trade Atlas.
11ncludes agricultural products.
2ASEAN countries plus Hong Kong SAR, Republic of Korea, and Taiwan Province of China.
3EU27 external trade.
4Latin America and the Caribbean, excluding Mexico.
- United States: Among our simulation countries, the United States is the one with the most stable export structure by destination during the last decade and a half. NAFTA partners remain by far its largest trading partners. Interestingly, Asia’s importance for U.S. exporters has declined, despite the region’s strong growth performance. Yet China’s share in U.S. exports has increased at the expense of other Asian countries, chiefly Japan. Although the United States may benefit from stronger expansion in Latin American countries, it remains a relatively closed economy. With a lackluster domestic medium-term outlook, its firms may renew efforts to exploit export opportunities in dynamic regions.
- Japan: Japan clearly reoriented its trade during the last 15 years by outsourcing production processes to other Asian countries, mainly China, from where in turn exports are shipped to more traditional trade partners in Europe and North America. Consequently, Japan’s exports to Asia have increased at the expense of those to the United States and Europe.
- Euro area: European countries were able to take somewhat better advantage of Asia’s emergence than the United States, although unexploited potential likely remains. The main reorientation of the European Union’s external trade was toward its (production chain) partners in eastern Europe, whereas the share of exports shipped directly to the United States declined. EU countries also fortified their role in proximate emerging markets in Central Asia and the Middle East and North Africa (MENA) region.
- China: During the last 15 years, Chinese exports not only expanded extraordinarily but also their composition became much more diversified, with exports to the euro area and particularly to EMEs outside east Asia gaining share. In the latter markets, the attractive pricing of their products may have helped Chinese firms gain market share. The share of Chinese exports shipped to the United States stayed constant. Outsourced Japanese production compensated for what would otherwise have been a decline in U.S. share given the strong expansion of Chinese exports in other markets.
Historically, price competitiveness has been an important determinant of export success. Over the past 20 years, the emergence of EMEs imposed a natural downward trend in advanced countries’ export market shares. The analysis shows that this decline could often be halted by real effective exchange rate (REER) depreciations. Appreciations in turn accelerated this decline, whereas impacts mostly materialized with a lag (Figure A4.2).41 Price competitiveness has remained an important determinant of export performance.
Figure A4.2.Export Market Shares and Real Effective Exchange Rates, 1990–2010
- United States: The 25 percent REER appreciation experienced by the United States between 1995 and 2001 resulted, after some lag, in a large loss of export market share between 2000 and 2004. Thereafter it was able to stabilize its export market share even despite EME’s forceful expansion, largely due to the favorable effects of an offsetting REER depreciation.
- Japan: Japan’s export market share cannot be well explained by changes in REER-based price competitiveness. Its price competitiveness was broadly stable in the 1990s and improved during the 2000s. Nevertheless, the country lost more than 40 percent of its export market share during the past two decades. The reason behind this divergence can largely be attributed to Japanese firms’ outsourcing of many downstream production processes to other Asian countries, which then came to serve as export platforms (European Central Bank, 2005).
- Euro area: The export market share of the euro area registered only a small decline until 2003 given help from a 20 percent euro depreciation at the end of the 1990s, just as EMEs started to take center stage. Following a considerable appreciation of the euro at the beginning of the 2000s, the euro area’s export market share began to plummet.
- China: For China, a relationship between its REER and its export market share is hard to identify. Its rapid integration into the world economy, particularly post-WTO accession in 2001, is clearly the overwhelming driver of its rising export market share. China’s REER was relatively stable over most of the period. The only exception occurred between 1995 and 1998 in the form of a 20 percent appreciation, which may have dented the country’s growth in export market share between 1997 and 1999.