Rising global trade numbers reflect changes at home and abroad, simultaneously highlighting the growing international importance of developing countries. As countries’ economic prospects shift their roles in global trade, relationships between nations continue to evolve. Meanwhile, the WTO and trade policies such as NAFTA and CAFTA matter even more.

By 2030, the global Gross Domestic Product (GDP) is expected to more than double its size in 2005, growing to $72 trillion from $35 trillion, according to the World Bank’s latest report on global economic prospects, entitled “Global Economic Prospects 2007: Managing the Next Wave of Globalisation.”

“Roughly half of the increase is likely to come from developing countries. Developing countries that only two decades ago provided 14 percent of manufactured imports of rich countries, total supply 40 percent, and by 2030 are likely to supply over 65 percent. At the same time, import demand from developing countries is emerging as a locomotive of the global economy,” the report said.

India
Last year saw “unprecedented growth” in India’s merchandise exports, which crossed the landmark figure of $100 billion and reached $103 billion during the year, recording a growth rate of 24 percent, India Infoline News Service reported last month.

At 24 percent growth in 2006-06 and 27 percent growth in 2004-05, exports are currently growing three times faster than GDP growth. Exports as a share of GDP is more than 13 percent currently compared with a share of only 6 percent in 1990-91.

In 2005, the lifting of quota restrictions on textile imports into the United States and European Union briefly saw the Chinese textile industry put its Indian competitors under severe pressure. The re-imposition of limited quotas, as well as improvements in Indian manufacturing, have restored Indian textile exports, according to Oxford Analytica, but the threat of Chinese competition remains widespread in Indian business circles.

China
During the first six months of 2006, China surpassed the U.S. as being the world’s largest exporter; Chinese exports of manufactured goods reached $404 billion compared to $367 billion in exports by the U.S. The country’s minister of commerce says that when all the final figures are in, China’s imports and exports will have climbed 24 percent, up $330 billion over 2005, Logistics Today recently reported.

Only five years ago, the U.S. exported more than double the amount of China.

U.S.-China economic ties have expanded substantially over the past few years. The two nations share the most imbalanced bilateral trade relationship in the world. The U.S. imports more goods from China than it exports, to a tune of $202 billion dollars each year. All told, as of mid-last year, China accounted for nearly 26 percent of the U.S.’s $725.8 billion trade deficit.

This continued rise in the U.S.-China trade imbalance, complaints from several U.S. manufacturing firms over the competitive challenges posed by cheap Chinese imports, and concerns that U.S. manufacturing jobs are being lost due to unfair Chinese trade practices all have led several politicians, pundits and industry experts to call for a more politically aggressive stance against certain Chinese trade policies deemed unfair.

For example, many argue that China’s policy of pegging its currency — the yuan — to the U.S. dollar makes U.S. exports to China more expensive and U.S. imports from China cheaper, than they would be if they were fully convertible. (Source: Congressional Issue Brief for Congress: China-U.S. Trade Issues)

United States
However, as accelerating global economic growth and a weaker dollar pushed exports to a record, the U.S. trade deficit unexpectedly shrank in November to the smallest since July 2005. The gap between imports and exports fell 1 percent to $58.2 billion in November, the Commerce Department said last week in Washington. Crude oil imports declined, partly reflecting warmer winter weather, and the trade shortfall with China retreated from a record high, Bloomberg News reported.

Overseas demand for US-made planes, cars, and telecommunications equipment increased after last year’s slide in the value of the dollar made American goods cheaper. A narrower deficit will probably add to the US economic expansion… .

Latin America, Caribbean and Britain
In a report released last month, the World Bank forecast 4.2 percent growth for Latin America and the Caribbean in 2007, down slightly from 2006 but still relatively strong, reports the latest issue of Newsweek.

Meanwhile, Britain’s trade deficit widened to the most in six months in November, as imports surged and the shortfall with nations outside Europe reached a record. The trade gap was 7.2 billion pounds ($14 billion), the Office for National Statistics said in London last week (via Bloomberg News).

NAFTA, CAFTA
In 1993, the North American Free Trade Agreement (NAFTA) brought Mexico into the Free Trade Agreement between Canada and the U.S. that had been in place since 1989.

Since then, supporters and detractors have been passionately vocal, while a proposal to create the Free Trade Area of the Americas (FTAA) — encompassing 34 countries in North, Central and South America — has been debated for the last decade.

The Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR, or best known simply as CAFTA), was signed by six Latin American countries between May and August 2004, but has been implemented in only four so far. For the countries in which it has entered into force, 2007 will be the first year of full implementation. The Dominican Republic is expected to implement it soon after its lawmakers passed additional laws required for the U.S. to certify the country as ready. Meanwhile, Costa Rica’s assembly will likely ratify the treaty before May, according to Global Insight.

Central American exports likely received a boost from CAFTA this year, especially in the last quarter, according to a forecast from the Inter-American Development Bank. Nicaragua and Costa Rica posted the strongest results, at 19.7 percent and 17.6 percent respective growth, and El Salvador and Honduras the weakest, at 4 percent and -4 percent.

U.S. IT companies are among those expected to benefit most from CAFTA, according to Fernando D. Sedano, an economist with U.S.-based Manufacturers Alliance/MAPI. Overall, 99 percent of U.S. exports of electronics and instrumentation receive immediate duty-free access under the CAFTA-DR, which compares to pre-CAFTA-DR average tariffs ranging from 2.1 percent to 5.5 percent, he points out in a recent report.

However, Charlie Wilson (D-Ohio) recently told BusinessWeek:

NAFTA and CAFTA — they really haven’t worked [for small businesses]. So it is fair to continue to have our trade deficit going up in the hundreds of billions of dollars? That is going to come home to roost.

WTO
The negotiation process in the World Trade Organization’s (WTO) Doha Round was interrupted last year. Global free trade talks, billed as a once-in-a-generation chance to boost growth and ease poverty, collapsed last July after nearly five years of haggling, and resuming them could take years.

The suspension of the WTO’s Doha Round came after major trading powers failed in a last-ditch bid to overcome differences on reforming the world farm trade, which lies at the heart of the round. The World Bank estimates that a deal could generate an extra $287 billion by 2015.

Developing countries are playing a growing role in the WTO, not only in the Doha negotiations, but in all facets of WTO activity, according to the WTO 2006 Annual Report last month.

Said the World Bank:

In today’s economically integrated world, trade matters more than ever before. Countries that have intensified their links with the global economy through trade and investment have usually grown more rapidly over a sustained period and have consequently experienced larger reductions in poverty. Unfortunately, many low-income countries have been hindered in their efforts to integrate into the global economy by inadequate policies, institutions and infrastructure, on one hand, and by a variety of rich country protectionist measures and other policies that restrict low-income countries’ exports, on the other.

According to a poll by Princeton Survey Research Associates for the Pew Research Center for the People and the Press, conducted among 1,502 American adults last month, 44 percent of respondents think free trade agreements have been a good thing for the U.S.

In general, do you think the WTO and free trade agreements such as NAFTA and CAFTA have been a good thing or a bad thing? In the U.S. or elsewhere?

Resources

Global Economic Prospects 2007: Managing the Next Wave of Globalization
World Bank, Dec. 13, 2006

2006 – Year of record exports
India Infoline News, Dec. 28, 2006

Tensions Underlie India-China Trade Ties
Oxford Analytica, Nov. 15, 2006

China Replaces U.S. As World’s Largest Exporter: Trade Imbalances Could Cause Financial Upheaval…
by Richard McCormack
Manufacturing & Technology News, Sept. 5, 2006

China’s Foreign Trade to Exceed $1.75 Trillion
Logistics Today, Jan. 8, 2007

Hu Jintao, Bush’s Banker? Why the U.S. China Trade Imbalance is Unsustainable
by Jennifer Brea
About World News

China-U.S. Trade Issues
by Wayne M. Morrison
Congressional Research Service, July 1, 2005

US trade gap shrinks to smallest since July of ’05
Bloomberg News, Jan. 11, 2007

The Upbeat Upperclass
by Joseph Contreras
Newsweek International, Jan. 15, 2007

U.K. Trade Deficit Widened to Most in Six Months in November
by Craig Stirling
Bloomberg News, Jan. 10, 2007

CAFTA 2007: Good Outlook
Truth About Trade & Technology, Dec. 20, 2006

New Small-Biz Agendas in Congress
BusinessWeek, Winter 2006

The World Bank Group: Trade

Free Trade Agreements Get a Mixed Review
The Pew Research Center for the People and the Press, Dec. 19, 2006