Trade Transformed

Like earlier waves, this growth in cross-border trade is driven by GDP growth, by per capita income growth and by the reduction in man-made and natural trade barriers (transportation costs, tariffs and non-tariff trade barriers). In addition, the globalization and regionalization of supply chains and the emergence of new trading hubs will play a bigger role in this wave of globalization.

Although fast growth in world trade is not new, we do not expect more of the same this time. Rather, the change we expect over the next forty years will be little short of transformational. What is new, at least since the industrial revolution of the late eighteenth century, is the prominence of today's emerging market economies (EMs) in world trade. Emerging Asia is set to overtake Western Europe to become the world's largest trading region by 2015. We expect China, already the world's largest exporter in 2010, to be the world's largest trading nation by 2015, overtaking the U.S. We expect Emerging Asia to become the largest region by trade in 2025, even though its share of world trade was only about half the level of Western Europe - the largest trading region today - in 2010. And India, currently not even on the list of the 10 largest nations by trade, will overtake the U.S. and Germany to become the world's second largest country by trade in 2050. We also expect Africa, a continent mainly notable for its absence in the first two waves of globalization, to more than double its share of world trade from 3% in 2010 to 7% in 2050. EMs will rise in significance as both exporters and importers. Thus, intra-EM trade, which rose from only 6% of world trade in 2000 to 15% in 2010, is set to account for 27% of world trade in 2030 and 38% in 2050.

This transformation in the geography of trade means that trade relationships will change almost everywhere. Regional trade partnerships will grow and the importance of China in particular, but also India, as trading hubs will increase while the traditional focus on the U.S., the EU and Japan as export destinations will diminish. The new, emerging global trading pattern is characterized by fragmented supply chains with increased vertical specialization, resulting in the foreign or import content of exports rising markedly. The content of trade will also change with today's manufacturing powerhouses exporting (and importing) more consumption goods and services. Today's commodity exporters will also gradually diversify their export offerings.

Our view of the future of world trade rests on a number of assumptions. Most notably, we assume that we will not observe a return to persistent and wide-ranging protectionism, large-scale geopolitical conflicts, or a fundamental derating of the growth prospects in EMs based on domestic or external factors. Should these risks materialize, our forecasts will very likely turn out to be too optimistic.

The growth and transformation of world trade has many implications not only for policy makers and supply chain managers, but also for investors. Economies of scale, scope, conglomeration and agglomeration imply that there is substantial inertia and path dependence in world rankings of trading hubs. But the scope and quality of transport infrastructure (roads, railways, airports, seaports) and the efficiency of infrastructural services (logistics, communications, transport, etc) are important factors - in addition to the legal and regulatory environment - affecting the likelihood of developing into a major trading hub. In the world of trade, many changes are afoot, but trade and finance will likely continue the close interlinkages they have exhibited in the past in the future.Authors: Willem Buiter,Ebrahim Rahbari,Authors: Willem Buiter,Ebrahim Rahbari,Authors: Willem Buiter,Ebrahim Rahbari,Authors: Willem Buiter,Ebrahim Rahbari,Authors: Willem Buiter,Ebrahim Rahbari,Authors: Willem Buiter,Ebrahim Rahbari,Authors: Willem Buiter,Ebrahim Rahbari,Authors: Willem Buiter,Ebrahim Rahbari,Authors: Willem Buiter,Ebrahim Rahbari,