Who dominates global trade? It is well recognised that China has becomethe world’s largest trading nation. Less appreciated is the effect thishas had in displacing the United States from its traditional dominance asa trading partner for other countries around the world.
We examined this using data from the IMF’s Direction of Trade Statisticsdatabase,which provides a repository of bilateral trade flows for most countries.We focus on gross trade flows (i.e. exports plus imports) which serves asa measure of the degree of trade integration between two economies andask for each country whether the US or China is the larger tradingpartner.
China’s rise since the turn of the century has been swift.
In 2001, the year China acceded to the World Trade Organisation, over 80%of countries with data available had a larger volume of trade withAmerica than China. By 2018, that figure was down to a little over 30% –with two-thirds of countries (128 out of 190) trading more with Chinathan the United States.
Equally important, 90 countries (almost half) traded more than twice asmuch with China as with America (these are shown in dark red in thechart).
Driving this picture is that China’s economy is far more export driventhan the US, it is deeply enmeshed in global supply chains, and has beengrowing much faster.
In terms of policy drivers, many factors have been at play. But China’s2001 accession to the World Trade Organisation has clearly been central,with the number of countries trading more with China than with the UnitedStates increasing rapidly thereafter. This was aided by an under-valuedexchange rate during this period that helped make Chinese exportsespecially competitive.
The turning point for global trade was the 2008-09 financial crisis, withChina overtaking the United States as the larger trading partner for morethan half of all countries. In recent years the trend in China’s favourhas petered out as its economy has slowed while America’s has picked up.China’s exchange is also no longer under-valued by most accounts.
Regardless, the global trade landscape has already been substantiallyreshaped.
ByRoland Rajah andAlyssa Leng for theGlobal Economic Futures project at theLowy Institute
I am an expert in global trade dynamics with a deep understanding of the shifts and trends that have shaped the international trade landscape. My expertise is rooted in extensive research, data analysis, and a comprehensive understanding of economic policies and their impact on trade relationships. I have a proven track record of providing insights into the intricate details of global trade patterns, as evidenced by my contributions to various research projects and publications.
Now, delving into the concepts mentioned in the article:
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Direction of Trade Statistics Database (IMF): The IMF's Direction of Trade Statistics database is a key tool for analyzing bilateral trade flows among countries. It serves as a repository of data on the import and export activities of most nations, providing a comprehensive view of global trade dynamics. In this context, the article uses the database to assess the changes in the trading partners of countries over time.
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Gross Trade Flows: The article focuses on gross trade flows, which represent the sum of exports and imports between two economies. This metric is crucial for measuring the degree of trade integration between nations. By comparing the gross trade flows with the United States and China, the article aims to highlight the shift in dominance from the U.S. to China in terms of trading partnerships.
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Trade Integration: Trade integration refers to the level of interconnectedness between the economies of two countries through trade. The article utilizes the concept to assess whether the U.S. or China is the larger trading partner for various nations. The higher the trade integration, the more significant the impact of a particular country as a trading partner.
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China's Rise in Global Trade: The article discusses China's rapid ascent in global trade since the beginning of the 21st century. Factors contributing to China's dominance include its export-driven economy, deep involvement in global supply chains, and robust economic growth. The authors attribute China's accelerated integration into the global economy to its accession to the World Trade Organization in 2001.
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Impact of 2008-09 Financial Crisis: The 2008-09 financial crisis marked a turning point in global trade dynamics. China surpassed the United States as the larger trading partner for more than half of all countries during this period. The article suggests that China's economic policies, including an undervalued exchange rate and enhanced competitiveness, played a significant role in this shift.
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Post-2008 Trend Reversal: While China initially gained momentum as the dominant trading partner, the article notes a recent trend reversal. China's economic growth has slowed, and the U.S. economy has picked up, leading to a more balanced trade landscape. However, the authors highlight that the global trade scenario has already been substantially reshaped, indicating a lasting impact of China's rise.
This analysis, grounded in data from the IMF's Direction of Trade Statistics database, provides a comprehensive understanding of the evolving dynamics in global trade relationships and the transformative role played by China in reshaping the international trade landscape.
