World merchandise trade increased 10% in 2000, according to early estimates of the World Trade Organization (WTO). That’s twice the rate for 1999, and one of the highest in the last decade. World merchandise trade in 2001 is estimated to grow at a healthy rate of 7%, still ahead of the overall levels in the ‘90s.

While there may be minor adjustments when the final figures are released in the spring, it is clear that 2000 was a banner year for trade and for companies trading internationally.

Several Factors Led to Strong Growth

A combination of factors triggered the large gain in world trade. This included the elimination of tariff and non-tariff barriers negotiated under the General Agreement on Tariffs and Trade (GATT) Uruguay Round agreement. Exceptionally strong economic growth in the United States and Asia’s recovery from its recent economic crisis further contributed.

Reduced Trade Barriers Boost Trade

Eight rounds of multilateral trade negotiations since 1947 under the auspices of GATT, now the WTO, have paid off. The goal of each round was to reduce or eliminate tariffs. By 1999, the bulk of the impact from tariff reductions negotiated under the most recent 1993 agreement, the Uruguay Round, was realized in developed countries.

The elimination of tariff barriers led to a 10% reduction in customs duties collected by the United States, the European Union (EU), and Japan from 1994 through 1999. This and other factors resulted in a 40% increase in imports by these three entities, representing approximately half the world’s imports. This boosted total world trade significantly.

Impact of U.S. and Asian Economic Growth

The strength of U.S. domestic demand, combined with the high value of the U.S. dollar, led to an increase in the share of U.S. world merchandise imports. In 1999, it rose to 18%, considerably higher than its share of 12% registered in 1980. On the other hand, America’s highly competitive industry captured more than 12% of world exports, slightly higher than 11% recorded in 1980. The U.S. world share of service exports and imports in 1999 was 19% and 13%, respectively.

The reenergizing of Asia after its economic crisis also was responsible for increased world trade. Its share of world exports jumped from 16% in 1980 to 27.5% in 1999, while its share of world imports rose from 17% in 1980 to 23% in 1999. Considering that Asia’s volume of imports decreased by 8.5% from 1997 to 1998, its 11.5% increase from 1998 to 1999 represented quite a comeback.

Developed vs. Developing Countries

If the differences expressed between the developed and developing countries attending last November’s Asia-Pacific Economic Cooperation (APEC) meeting is an indication of their future positions, reaching a consensus on issues likely will be difficult. The challenges presented by globalization and equal access to each other’s markets will continue to be areas of concern. The trade figures also indicate substantial differences.

According to the WTO, developing countries’ merchandise exports expanded by 9% in 1999, approximately two times faster than the global trade average. Their share of world merchandise exports and imports reached 27% and 25%, respectively.

China captured a world export and import share of 3.5% and 2.8% respectively; Hong Kong, 3.1% and 3.1%; North Korea, 2.6% and 2%; Mexico, 2.4% and 2.5%; Taiwan, 2.2% and 1.9%; and Singapore, 2% and 1.9%.

The vast majority of merchandise exports was produced by developed countries. However, their merchandise exports increased less than 2% from 1998 through 1999. Leading the pack was the United States with a 12.4% share of world exports and 18% of imports; Germany, 9.6% and 8%; Japan, 7.5% and 5.3%; U.K., 4.8% and 5.5%; France, 5.3% and 4.9%; and Canada, 4.2% and 3.7%.

Goods and Services Trade Expands

The global export value of world services recovered in 1999 after a poor performance in 1998. Commercial services rose by 1.5% from 1998 through 1999. Trade of travel services increased by 2%. Most activity was seen in North America and Asia. Eastern Europe and Latin America, however, performed poorly in service exports.

World exports of goods experienced the largest jump in fuels, followed by office and telecom equipment, automotive products, consumer goods, and chemicals. A decrease was witnessed in textiles, iron and steel. The value of world exports of agricultural foods and commodities decreased primarily due to weaker prices.

World clothing exports slightly expanded. Together, North America’s clothing imports slowed sharply from double-digit growth recorded in 1998 and 1997. Western Europe’s clothing imports declined modestly, partly due to the weakening Euro, while Japan’s imports rose.

Trade Bloc Performance Varied

The performance of regional trade blocs in 1999 differed. Intra-trade exports and imports among North American Free Trade Agreement (NAFTA) members increased by 11% and 12%, respectively, over 1998. The 10-member Association of Southeast Asian Nations (ASEAN) also experienced solid expansion of trade among members. In 1999, intra-ASEAN exports and imports jumped 10% and 7%, respectively, from the previous year.

However, recession in the Mercosur trade bloc, which includes Brazil, Paraguay, Uruguay, and Argentina, led to a trade contraction of 26% in intra-trade exports and a decrease of 24% in imports. Intra-EU trade also didn’t perform well. In 1999, both intra-trade exports and imports were stagnant compared to 1998.

What Does This Mean for Your Business?

Real global gross domestic product (GDP) growth is projected to decrease from 4.1% in 2000 to 2.7% in 2001. However, it is expected to increase to 3.5% in 2002, according to Bank of America. Similarly, U.S. real GDP is projected to decrease from 5.0% in 2000 to 1.9% in 2001, and projected to rise in 2002, reaching 3.5%.

Understanding past and present growth and world trade patterns is necessary in order to craft a sound short- and long-term world trade and investment strategy. But, in the absence of a crystal ball, projecting future activity is difficult at best. As a result, a policy of pursuing several favorable markets with products in demand will help to mitigate risks should your primary markets experience slow economic growth.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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