International trade is still an important force driving global economic growth ｜ China observation
Looking forward to the new year, the global economy will continue to benefit from the integration of international trade.
First of all, despite all kinds of statements, international trade is still strong.figure 1It shows the trend of global gross domestic product (GDP) and trade volume in the past 30 years (the data in 2023 is the predicted value in the World Economic Outlook released by the International Monetary Fund in October 2023). In 2023, the global trade volume is expected to be 8% higher than the peak before the COVID-19 epidemic.
pictureone：the whole worldGDP and trade index (1990year=one00)
Secondly, the attitude of policy makers towards implementing trade protectionism has weakened.
The global trade early warning system has been tracking policy interventions that affect international trade and cross-border investment. From 2020 to 2022, the system recorded an average of more than 4,800 trade restrictions every year (Figure 2）。 Compared with an average of 2,800 such interventions each year from 2009 to 2019, the number has increased significantly.
The surge in recent years is probably caused by the COVID-19 epidemic. Encouragingly, as the COVID-19 epidemic recedes, policy makers are no longer inclined to protect the domestic market. In 2023, these trade restrictions fell below 3,000.
picture2: Number of trade restrictions
The global trade early warning system also tracks trade liberalization measures (Figure 3）。 Trade restrictions are usually about five times that of trade liberalization, however, the proportion is shrinking at present.
We should not underestimate the benefits of reducing protectionist policies to the global economy. Research by the Swiss Center for Economic Research (KOF) shows that trade liberalization is a key factor to support per capita GDP growth.
picturethree: Number of trade liberalization measures
The research of Freund Loinder and his co-authors shows that, despite the adoption of protectionist policies, the de-globalization of the United States is limited to a part of US-China trade. Although the then US President Trump imposed tariffs in 2018-2019, trade data shows that the overall openness of the United States to the world has not changed. In the year ending in November 2023, the import volume of goods in the United States increased by 24% compared with 2019 (Figure 4）。
picturefour：US merchandise imports (trillion US dollars)
However, the United States imposed tariffs on goods imported from China, which caused China’s share of American goods imports to drop from 22% in early 2018 to 14% in November 2023. After a very detailed analysis of American imports, Loinder and his co-authors found that the decline of China’s market share is not a common phenomenon in all imported goods, but concentrated on the goods affected by American tariffs.
Loinder and other co-authors also found that countries that increased their exports to the United States in these product lines also strengthened their supply relationship with China, especially for those products listed as "advanced technology products" by the United States government. Therefore, the United States may not be able to reduce its dependence on China as its trade data shows.
The latest research by Qiu Han and his co-authors also confirms this conclusion. Qiu Han and his co-authors found that companies from other countries in the Asia-Pacific region seem to have intervened in the supply chain between China and the United States, occupying a larger share of the added value. This influence is most obvious in the information technology (IT) industry, in which the direct contact between China and the United States has evolved into indirect contact through other Asian countries.
China is playing an increasingly important role in the regional supply chain.
table 1It shows that in the year ending September 2023, China’s share of US merchandise imports was 14.0%, which was 7.5 percentage points lower than that in 2017 (21.5%). In the same period, China’s import share to the four largest ASEAN countries (Viet Nam, Thailand, Indonesia and Malaysia) increased by 4.0 percentage points. Most notably, China’s share of Vietnamese merchandise imports increased by 7.2 percentage points. Among the four largest ASEAN countries, Vietnam’s exports to the United States increased the most (Figure 5）。
Although China’s share of global merchandise imports dropped from 13.7% to 13.2%, the decline in its share was entirely due to China’s export performance to the United States. China’s share of goods imports in other parts of the world except the United States increased by 0.6 percentage points. It is worth mentioning that, although the increase in tariffs has led to a decrease in China’s share (14.0%) of American merchandise imports, the United States still relies more on China’s merchandise imports than other regions in the world (China’s share of imports is 13.1%).
tableone: China’s share of some countries’ imports (%)
Source: International Monetary Fund, First Institute of Finance and Economics
picturefive: US imports (12Monthly rolling)
All in all, globalization has not undergone a major reversal. This is a good thing, because specialized division of labor and free trade are important forces to promote global economic growth. The United States may not be able to reduce its dependence on China as its trade data shows. From China’s point of view, the United States’ tariff increase measures have led China enterprises to extend their supply chains and strengthen cooperation with their Asian neighbors. China is playing an increasingly important role in the regional supply chain.
(Source of this article: CBN)
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Wen | Senior Academic Advisor, Cormac First Institute of Finance and Economics
Contact us | yicairi@yicai.com
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