Trade liberalisation has helped galvanise the electronics industry

After a difficult couple of years for international trade, there are reasons for importers and exporters to be optimistic. Global export growth for goods is expected to accelerate, according to the latest HSBC Trade Forecast.

While developed economies will drive expansion in the short term, we expect emerging markets, especially the dynamic economies of Asia, to lead over the longer term. Vietnam and India are forecast to increase merchandise exports by more than 10 per cent a year on average in the years to 2030. China’s influence on global trade is also likely to increase.

History shows trade agreements can boost international commerce

China is the biggest exporter of goods in the world, but as its middle classes continue to expand, it will become more important as a consumer market. In fact, this transition is well underway. China is already the biggest destination for exports from Saudi Arabia and Australia as the construction of new cities, energy and transport networks in China has created demand for oil, coal and steel. By 2030 China is also expected to become the biggest export market for Germany and Malaysia.

While the trade growth expected in emerging economies is impressive, the Trade Forecast also highlights the continuing relevance of developed economies. The US is likely to remain the number one destination for exporters of goods from Mexico, Canada and Ireland. It is also expected to replace Germany as the single most important destination for UK exporters by 2030.

Germany is set to remain the most important export market for businesses in neighbouring France and Poland. This underlines the fact that some companies will continue to grow by trading goods close to home and along established trade routes.

Potential changes in the broader landscape for international trade may also bring new opportunities for businesses seeking global expansion. Negotiators are making progress towards several important trade agreements.

History shows that trade agreements can boost international commerce. Trade liberalisation measures contributed around 20 per cent of the growth in global trade between 1994 and 2004, according to the National Institute of Economic and Social Research, a UK think-tank.

Trade liberalisation can also galvanise particular industries. Take, for example, electronics. The World Trade Organization’s Information Technology Agreement, signed in 1996, removed tariffs and duties on a broad range of electronic products. Electronics exporters have benefited from being able to sell goods to consumers at lower cost as a result.

China in particular has capitalised on this: in 2000, Chinese exports accounted for around 7 per cent of international electronics trade across the 25 countries and territories covered in the HSBC Trade Forecast. Today, China accounts for more than a third of electronics trade.

Talks currently underway could expand the coverage of the Information Technology Agreement to include 200 additional products. Also at the World Trade Organization, a new Trade Facilitation Agreement has been concluded and is awaiting ratification by member states. This agreement aims to cut red tape and simplify customs regulations worldwide, which should reduce the costs of international commerce.

Alongside global discussions, a number of countries are considering regional trade agreements. A potential deal between the US and the EU would make it easier for companies in the world’s largest economy to do business with the world’s largest trading bloc. The Trans-Pacific Partnership seeks to liberalise trade among countries around the Pacific Basin: currently, 12 countries are taking part in these talks, though they do not include China. A separate initiative, the Regional Comprehensive Economic Partnership, would create a free-trade zone across 16 countries in Asia, including China as well as India.

Whether or not these deals are concluded depends on the political will of the countries negotiating them, and it is difficult to quantify the potential impact. But as and when new agreements are concluded, businesses will need to be alert. Agreements may help them access new, lower-cost suppliers, or reach consumers in new markets. Trade deals may also open the door to new competitors, forcing companies to react.

Overall, trade continues to offer international businesses many opportunities for growth – but being aware of changes in the wider landscape will be crucial for success.

Related content

Export growth to accelerate

28 May 2015

Growth in exports will rise to 8 per cent per year by 2017,…