World Trade: An Overview

CONTENT

1. Who trade with whom?

2. The changing composition of international
trade
3. International trade situation and prospect
1. WHO TRADES WITH WHOM?

The key trading partners

Using the gravity model

MERCHANDISE TRADE VOLUME BY
REGION (2014 – Q3/2020)
(SOURCE: WTO-UNCTAD)

COPYRIGHT © 2006 PEARSON ADDISON-WESLEY. ALL RIGHTS RESERV 2-4

ED.
MERCHANDISE TRADE VOLUME BY
REGION (2014 – Q3/2020)
(SOURCE: WTO-UNCTAD)

COPYRIGHT © 2006 PEARSON ADDISON-WESLEY. ALL RIGHTS RESERV 2-5

ED.
 Key trading partners in the world
Biggest merchandise exporters 2020
(Source: WTO - World Trade Statistical Review
Value 2020) Value
Ranking Exporter Ranking Exporter
(in billion $) (in billion $)
1 China 2591 13 Canada 391
2 United States of
1432 14 Singapore 363
America
3 Germany 1380 15 Taiwan 347
4 Russian
Netherlands 674 16 332
Federation
5 Japan 641 17 Switzerland 319
6 Hong Kong,
549 18 Spain 307
China
7 Republic of United Arab
512 19 306
Korea Emirates
8 Italy 496 20 Vietnam 283
9 France 488 21 India 276
10 Belgium 419 22 Poland 271
11 Mexico 418 23 Australia 250
12 United Kingdom 403 24PEARSON ADDISON-WESLEY.
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ED.
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 Key trading partners in the world
Biggest merchandise importers 2020
(Source: WTO - World Trade Statistical Review
Value 2020) Value
Ranking Importer Ranking Importer
(in billion $) (in billion $)
1 United States of 13
2408 Mexico 393
America
2 China 2056 14 India 372
3 Germany 1171 15 Singapore 330
4 United Kingdom 635 16 Spain 325
5 Japan 635 17 Switzerland 291
6 Netherlands 597 18 Chinese Taipei 288
7 France 582 19 Viet Nam 263
8 Hong Kong, 20
570 Poland 257
China
9 Republic of 21 Russian
468 240
Korea Federation
10 22 United Arab
Italy 423 226
Emirates
11 Canada 414 23 Turkey 393
12 Belgium 395
ED. 24
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Australia 2-7
372
Key trading partners in the world
Top 10 service exporter in Q3 – 2020
(Source: UNCTAD)

Ranking:1 Ranking: 6
United States of America
Netherlands
Value: $163B
Value: $65B

Ranking: 2 Ranking: 7
United Kingdom United Kingdom
Value: $86B Value: $63B

Ranking: Ranking: 8
3 India
Germany Value: $49B
Value: $74B
Ranking: 4 Ranking: 9
China Singapore
Value: $70B Value: $42B

Ranking: Ranking: 10
5 Japan
France Value: $35B
Key trading partners in the world
Top 10 service importer in Q3 – 2020
(Source: UNCTAD)

Ranking:1 Ranking: 6
United States of America Ireland
Value: $108B Value: $56B

Ranking:
Ranking: 7
2 United Kingdom
China Value: $47B
Value: $98B
Ranking: 3
Germany Ranking: 8
Value: $74B Japan
Value: $43B
Ranking: 4
Netherlands Ranking: 9
Value: $61B Singapore
Value: $39B
Ranking: 5
France
Ranking: 10
Value: $60B India
Value: $35B
VIETNAM’S PARTNERS

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VIETNAM’S PARTNERS

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USING THE GRAVITY MODEL

First introduced by Jan Tinbergen (1962)

The model is inspired by Newton's law of gravitation in physics.
Gravity models have long been used to explain bilateral trade.
They explain trade flows between countries i and j by their sizes
(GDPs) and a variety of variables capturing the geographic and
historical proximity between the two counties (distance, culture,
border, and other factors that affect trade barriers).
 USING THE GRAVITY MODEL

The gravity model’s equation:

Where:
Tij: the value of trade between country i and country j
A: the constant
Yi: the GDP of the country i
Yj: the GDP of the country j
Dij: the distance between country i and j
USING THE GRAVITY MODEL: SIZE
MATTERS

The size of an economy is directly related to the volume of

imports and exports:
 Larger economies produce more goods and services, so
they have more to sell in the export market
 Larger economies generate more income from the goods
and services sold, so people can buy more imports.
  2 of the top 10 trading partners with
the US in 2019 were also the 2 largest
European economies: Germany and the
United Kingdom
 These countries have the largest gross
domestic product (GDP) in Europe.
 GDP measures the value of goods and
services produced in an economy.
 Why does the US trade most with these
European countries and not other
European countries?

Figure 7: The size of European economies

and the value of their trade with the US

Source: US Department of Commerce,

European Commission
 USING THE GRAVITY MODEL:
DISTANCE
Distance between market influences transportation costs => cost of
imports and exports
Distance may also influence personal contact and communication,
which may influence trade
Estimates of the effect of distance of the gravity model predict that a
1% increase in the distance between countries is associated with a
decrease in the volume of trade of 0.7% to 1%
 The United States
does markedly
more trade with its
neighbors than it
does with
European
economies of the
same size
Figure 5: Economic Size and Trade with the US
Source: US Department of Commerce, European Commission
USING THE GRAVITY MODEL:
OTHER MATTER
Cultural affinity: if two countries have cultural ties, it is
likely that they also have strong economic ties.
Geography: ocean harbors and a lack of mountain
barriers make transportation and trade easier.
Multinational corporations: corporations spread across
different nations import and export many goods between
their divisions.
Borders: crossing borders involves formalities that take
time and perhaps monetary costs like tariffs.

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USING GRAVITY MODEL:
CULTURAL AFFINITY
Vietnam Top 5 Merchandise Export Partners in 2019

Market Trade (US$ Million) Partner share (%)

United Stated 61404 23.2

China 41434 15.7

Japan 20427 7.7

Korea 19729 7.5

Hong Kong 7162 2.7

Vietnam Top 5 Merchandise Import Partners in 2019

Market Trade (US$ million) Partner share (%)
China 75586 29.8
Korea 46941 18.5
Japan 19532 7.7
Taipei, Chinese 15180 6.0
United States of America 14376 5.7

Source: UNCTAD
 USING GRAVITY MODEL:
GEOGRAPHY
Geography: ocean harbors and a lack of
mountain barriers make transportation
and trade easier
For example, Netherlands and Belgium
have traditionally been the point of entry
to much of northwestern Europe;
Rotterdam in the Netherlands is the most
important port in Europe, as measured
by the tonnage handled
Antwerp in Belgium ranks second.

Netherlands, Belgium and Germany are all

big trading partners of the US
USING GRAVITY MODEL: MNCS
Multinational corporations (MNCs) spread across different nations import and
export many goods between their divisions
Foreign affiliates of MNCs account for over one-third of the world exports
More than 40% of total exports of China is done by MNCs (UNCTAD 2017)
Surprisingly, Ireland plays a special role as host to many U.S.-based
corporations

Over a
third of the
world
trade
happens
inside
MNCs
USING GRAVITY MODEL: BORDERS

• Borders: borders increase the cost and time needed to

trade.
Trade agreements between countries are intended to
reduce the formalities and tariffs needed to cross borders,
and therefore to increase trade.
The gravity model can assess the effect of trade
agreements on trade: does a trade agreement lead to
significantly more trade among its partners than one
would otherwise predict given their GDPs and distances
from one another?

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USING GRAVITY MODEL: BORDERS
•The US has signed a free trade agreement with Mexico
and Canada in 1994, the North American Free Trade
Agreement (NAFTA).
•Because of NAFTA and because Mexico
and Canada are close to the US, the
amount of trade between the US and its northern and
southern neighbors as a fraction of GDP is larger than
between the US and European countries.

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USING GRAVITY
MODEL: BORDERS
•Yet even with a free trade agreement between the US and
Canada, which use a common language, the border
between these countries still seems to be associated with
a reduction in trade.

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2. CHANGING
COMPOSITION OF TRADE

Volume and growth rate of international trade

What do we trade: changes in trade structure

CHANGING
COMPOSITION OF TRADE

World trade is expected to fall by between 13% and 32% in 2020 as the
COVID 19 pandemic disrupts normal economic activity and life around the
world 2-28
CHANGING
COMPOSITION OF TRADE

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CHANGING
COMPOSITION OF TRADE
•What kinds of products do nations currently trade,
and how does this composition compare to trade in the
past?
•Today, most of the volume of trade is in manufactured
products such as automobiles, computers, clothing and
machinery.
¨Services such as shipping, insurance, legal fees and spending by
tourists account for 20% of the volume of trade.
¨Mineral products (e.g., petroleum, coal, copper) and agricultural
products are a relatively small part of trade.

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CHANGING COMPOSITION OF
TRADE
•In the past, a large fraction of the volume of trade came from
agricultural and mineral products.
¨In 1910, Britain mainly imported agricultural and mineral products,
although manufactured products still represented most of the volume of
exports.
¨In 1910, the US mainly imported and exported agricultural products
and mineral products.
¨In 2002, manufactured products made up most of the volume of
imports and exports for both countries.

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CHANGING COMPOSITION OF
TRADE (CONT.)

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CHANGING COMPOSITION OF
TRADE (CONT.)

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CHANGING COMPOSITION OF
TRADE (CONT.)
•Developing countries, or low and middle-income
countries, have also changed the composition of
their trade.
¨In 2001, about 65% of exports from developing
countries were manufactured products, and only 10% of
exports were agricultural products.
¨In 1960, about 58% of exports from developing
countries were agricultural products and only
12% of exports were manufactured products.

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CHANGING COMPOSITION OF
TRADE (CONT.)

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3. INTERNATIONAL TRADE SITUATION
AND PROSPECTS

Some tendencies of the world development

 Multicultural corporations
 Outsourcing
Impacts of those tendencies on the world trade
MULTINATIONAL CORPORATIONS
AND OUTSOURCING

Before 1945, multinational corporations played a

small role world trade.
But today about one third of all US exports and 42%
of all US imports are sales from one division of a
multinational corporation to another.

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MULTINATIONAL CORPORATIONS
AND OUTSOURCING (CONT.)

•Outsourcing occurs when a firm moves business

operations out of the domestic country.
¨The operations could be run by a subsidiary of a
multinational corporation.
¨Or they could be subcontracted to a foreign firm.
•Outsourcing of either type increases the amount
of trade.

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OUTSTANDING INTERNATIONAL
TRADE ISSUES IN 2020
Important FTAs ​with Vietnam as a member have been
signed and come into effect
 European Union & Vietnam (EVFTA)
signed: 30/6/2019
in force: 1/8/2020
 United Kingdom – Vietnam (UKVFTA)
signed: 29/12/2020
in force: 1/1/2021
 Regional Comprehensive Economic Partnership (RCEP)
signed: 15/11/2020
15 members: Australia, Brunei, Cambodia, China, Indonesia, Japan,
South Korea, Laos, Malaysia, Myanmar, New Zealand, Philippines,
Singapore, Thailand, Vietnam 2-39
 OUTSTANDING INTERNATIONAL
TRADE ISSUES IN 2020
 On 31 December 2020, United Kingdom
completed its separation from the European
Union

 On 1 February 2021, the UK government

formally applied to join CPTPP, a trade
pact between 11 countries (including
Vietnam)

* CPTPP: Comprehensive and Progressive Agreement for Trans-

Pacific Partnership

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 OUTSTANDING INTERNATIONAL
TRADE ISSUES IN 2020
A trade dispute ramped up between China and Australia
 The relationship between the two countries has deteriorated
since Australia supported a call for an international inquiry into
China’s handling of the coronavirus
 China has taken several measures this year that impede
Australian imports, ranging from levying tariffs to imposing
bans and restrictions.
Several Australian export sectors being affected
 barley (anti-dumping and anti-subsidy duties of 80.5%)
 wine (preliminary anti-dumping duties ranging from around
107% to 212%)
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