Global Trade Patterns

What is trade?

Trade refers to the exchange of goods and services for money. Sen argues that exchange is a human right, “the freedom to exchange words, goods, or gifts does not need defensive justification...they are part of the way human beings in society live and interact with one another" (1999: 8). International trade refers to "sales which cross juridical borders" (Sutcliffe 2001: 71). The control of trade has been, and continues to be, an important focus of state policy, and a determinant of international inequality.

One way to understand the effect of international trade on a country's economy is to examine its trade as a percent of Gross Domestic Product.

The structure of world trade

With the rise of a global trading system at the time of European colonial expansion, a 'colonial division of labor' emerged in which developing countries exported primary products, agriculture and minerals, while Europe and North America exported manufactured goods. The structure of world trade has begun to change since World War II and particularly in the last three decades. Important characteristics of current global trade patterns now include:

* 75 % of the world's exports are from developed countries, while only 25% are from developing ones;
* developed countries export mainly manufactured goods: 83% of their total, 62% of all world exports;
* developing countries also export more manufactured goods than primary products: 56% of their total, 14% of world exports;
* more primary products are exported by developed countries than by developing countries: 14% of world exports, compared with 11% (Sutcliffe 2001: 71-75; UNCTAD 1999a).

See trade flows for more details on the size and destination of trade flows.

Changing fortunes of developed and developing countries

A country's share in the world export market represents one measure of its participation in the world economy and its purchasing power of imports. Although most developing countries increased their share of exports during the 1990s, the increase was highly uneven. The following describes major changes in trade patterns:

* from 1950 to 1970: developed countries gained in the share of total world exports, and developing countries lost;
* in the 1980s and 1990s: a group of developing countries in East Asia significantly increased their manufactured exports, and this increased their share of the world trade
* Latin America's share fell substantially from 1950 through 1990, and then began to increase slightly
* Exports from West Asia and North Africa fell since 1980, due to declining petroleum prices.
* There has been a historic decline in the exports of the Sub-Saharan continent. Its share of the world total has dropped from over 3 per cent in 1950 to barely 1 per cent in 1996. This has been largely due to the fact that Africa has not basically changed the products it exports, and that the prices of these products have tended to fall. (Sutcliff 2001: 76).

One alternative to globalized free trade is the creation of trade blocs which can manage and promote trade within geographic regions. Some developing countries that are skeptical of free trade prefer to participate in regional trade blocs which offer some protection against larger and more aggressive global trading partners.

International trade, both in terms of value and tonnage, has been a growing trend in the global economy. The emergence of global trade patterns can mainly be articulated within three major phases.

• First phase. Concerns a conventional perspective on international trade that prevailed until the 1970s where factors of production were much less mobile. Particularly, there was a limited level of mobility of raw materials, parts and finished products in a setting which is fairly regulated with impediments such tariffs, quotas and limitations to foreign ownership. Trade mainly concerned a range of specific products, namely commodities, (and very few services) that were not readily available in regional economies. Due to regulations, protectionism and fairly high transportation costs, trade remained limited and delayed by inefficient freight distribution. In this context, trade was more an exercise to cope with scarcity than to promote economic efficiency.
• Second phase. From the 1980s, the mobility of factors of production, particularly capital, became possible. The legal and physical environment in which international trade was taking place lead to a better realization of the comparative advantages of specific locations. Concomitantly, regional trade agreements emerged and the global trade framework was strengthened from a legal and transactional standpoint (GATT/WTO). In addition, containerization provided the capabilities to support more complex and long distance trade flows, as did the growing air traffic. Due to high production (legacy) costs in old industrial regions, activities that were labor intensive were gradually relocated to lower costs locations. The process began as a national one, then went to nearby countries when possible and afterwards became a truly global phenomenon. Thus, foreign direct investments surged, particularly towards new manufacturing regions as multinational corporations became increasingly flexible in the global positioning of their assets.
• Third phase. There is a growth in international trade, now including a wide variety of services that were previously fixed to regional markets and a surge in the mobility of the factors of production. Since these trends are well established, the priority is now shifting to the geographical and functional integration of production, distribution and consumption with the emergence of global production networks. Complex networks involving flows of information, commodities, parts and finished goods have been set, which in turn demands a high level of command of logistics and freight distribution. In such an environment, powerful actors have emerged which are not directly involved in the function of production and retailing, but mainly taking the responsibility of managing the web of flows.

The global economic system is thus one characterized by a growing level of integrated services, finance, retail, manufacturing and nonetheless distribution, which in turn is mainly the outcome of improved transport and logistics, a more efficient exploitation of regional comparative advantages and a transactional environment supportive of the legal and financial complexities of global trade. The outcome has been a shift in global trade flows with many developing countries having a growing participation to international trade. The nature of what can be considered international trade has also changed, particularly with the emergence of global commodity chains. This trend obviously reflects the strategies of multinational corporations positioning their manufacturing assets in order to lower costs, maximize new market opportunities while maintaining the cohesion of their freight distribution systems. In addition, another important trade has been growing imports of resources from developing countries, namely energy, commodities and agricultural products.

The geography of international trade still reveals a dominance of a small number of countries, mainly in North America and Europe. Alone, the United States, Germany and Japan account for about a third of all global trade, but this supremacy is being seriously challenged. Further, G7 countries account for half of the global trade, a dominance which has endured for over than 100 years. A growing share is being accounted by the developing countries of Asia, with China accounting for the most significant growth both in absolute and relative terms. Those geographical and economic changes are also reflected over trans-oceanic trade with Trans-Pacific trade growing faster than Trans-Atlantic trade.

Regionalization has been one of the dominant features of global trade. The bulk of international trade has a regional connotation, promoted by proximity and the establishment of economic blocs such as NAFTA and the European Union. The closer economic entities are, the more likely they are to trade, which explains that the most intense trade relations are within Western Europe and North America. The growth of the amount of freight being traded as well as a great variety of origins and destinations promotes the importance of international transportation as a fundamental element supporting the global economy.

4. International Transportation

With the growth of international trade and the globalization of production, international transportation systems have been under increasing pressures to support additional demands. This could not have occurred without considerable technical improvements permitting to transport larger quantities of passengers and freight, and this more quickly and more efficiently. Few other technical improvements than containerization have contributed to this environment of growing mobility of freight. Since containers and intermodal transportation improve the efficiency of global distribution, a growing share of general cargo moving globally is containerized. Consequently, transportation is often referred as an enabling factor that is not necessarily the cause of international trade, but a mean over which globalization could not have occurred without. A common development problem is the inability of international transportation infrastructures to support flows, undermining access to the global market and the benefits that can be derived from international trade.

About half of the global trade takes place between locations of more than 3,000 km apart. Because of the involved geographical scale, most international freight movements involve several modes, especially when origins and destinations are far apart. Transport chains must be established to service these flows which reinforce the importance of international transportation modes and terminals at strategic locations. International trade requires distribution infrastructures that can support trade between several partners. Three components of international transportation facilitate trade:

• Transportation infrastructure. Concerns physical infrastructures such as terminals, vehicles and networks. Efficiencies or deficiencies in transport infrastructures will either promote or inhibit international trade.
• Transportation services. Concerns the complex set of services involved in the international circulation of passengers and freight. It includes activities such as distribution, logistics, finance, insurance and marketing.
• Transactional environment. Concerns the complex legal, political, financial and cultural setting in which international transport systems operate. It includes aspects such as exchange rates, regulations, quotas and tariffs, but also consumer preferences.

Among the numerous transport modes, two are specifically concerned with international trade; maritime and air transportation. Indeed, the road and railway modes tend to occupy a marginal portion of international transportation since they are above all modes for national or regional transport services. However, a substantial share of the NAFTA trade between Canada, United States and Mexico is supported by trucking, as well as large share of the Western European trade. In spite of these observations, these exchanges are at priori regional by definition, although intermodal transportation confers a more complex setting in the interpretation of these flows.

Economic development in Pacific Asia and in China in particular, has been the dominant factor behind the growth of international transportation in recent years. Since the trading distances involved are often considerable, this has resulted in increasing demands on the maritime shipping industry and on port activities. As its industrial and manufacturing activities develop, China is importing growing quantities of raw materials and energy and exporting growing quantities of manufactured goods. The outcome has been a surge in demands for international transportation. The ports in the Pearl River delta in Guangdong province now handle almost as many containers as all the ports in the United States combined.

Other Trends

Globalization - markets and products are more global. Products by Nike and Virgin are known the world over. Today, even resourcing is becoming global. Thus many companies outsource manufacturing and software development to distant locations.


Information/Knowledge Intensity - efficient production relies on information and know-how; over 70 per cent of workers in developed economies are information workers; many factory workers use their heads more than their hands.


Networking and Connectivity - developments such as the Internet bring the 'global village' ever nearer.