Every year goods and services worth trillions of dollars are traded across the globe. In 2019, the global trade value of goods exported worldwide accounted for about USD 19 trillion at the current price. In comparison, the numbers stood at approximately USD 6.45 trillion almost two decades ago, in 2000. The exponential rise in the value of goods being traded between the nations is a clear reflection of the rate at which international trade has grown. From as small as kid’s toys to as large as heavy-gauge machinery, everything is traded in the international market.
But, what exactly is global trade?
It refers to the exchange of goods, services, and capital between different countries and territories. In this umbrella term lie three distinct categories – import trade, export trade, and extreport trade.
Also : What is Global Trade?
Let’s understand these three categories in more detail:
Types of global trade categories
- Import trade
Simply put, import means purchasing goods and services from another country or a set of countries to meet the domestic needs for those commodities.
For instance, the United States heavily depends on China for almost every import category. Topping the list, it primarily imports machinery & electrical, miscellaneous items, and textiles from the Asian country. Meanwhile, the United States imports plastics/rubber, transportation, and foodstuff from India.
This is because China and India are massive producers of these respective goods. They offer competitive rates in the global trade market and even transport goods at cheaper prices to the United States.
Similarly, the Arab nations import agricultural- and apparel-based products from India as they’re easier to procure and cheaper to import, than producing them in their own nations.
- Export trade
Exports are exactly the opposite of import trades. They’re a type of international dealing wherein a country sends goods and services to another country in need of those commodities.
Considering the above example, in the case of the United States, China and India are the exporters of their respective commodities to the States. They help the United States to fulfill its requirements for many goods and services including, exporting heavy-gage machinery, electrical equipment, textile, plastics/rubber, transportation, foodstuff, and many more.
- Entrepot trade
Entrepot is another form of international trade that combines both import and export trade. In this type of trade, goods and services are imported from one country and sold to another nation in need of those commodities. You can also say that commodities imported are not consumed within the domestic market of the importing country, rather they’re exported to foreign countries at a profit.
For instance, India imports rubber and related goods from Thailand, processes it into semi-finished or finished goods, and exports it to another country like Japan. Such a trade is known as entrepot trade.
Many countries today do entrepot trade because of the below-mentioned reasons:
- Lack of direct connection or absence of a trade agreement between the two nations
- Better processing and logistical facilities are offered by the third nation
- No banking facility is available in the importing country for the trade finance
Advantages of global trade
The exponential growth in global trade is a testimony to the fact that it offers many benefits. These are as follows:
- Encourage specialization: Countries can exclusively focus on manufacturing commodities that are specific to their geography, capacity, and skills, and are in high demand in the global market. It’s a great way to encourage differentiation and specialization.
- High-quality goods: Global trade allows countries to get high-quality commodities at significantly affordable prices into their domestic markets to meet the needs and requirements of their people. For instance, if the United States is running short of petroleum and petroleum products, it can contact a global trade company supplying these products and import the same to meet its demands.
- Competitiveness: It prompts a sense of competition in the domestic market, urging the local manufacturers or producers to offer products that are equally good in quality and match the competitive pricing.
- Technology transfer: Global trade has enabled many countries to sign unique trade agreements. One of them emphasizes the transfer of technology from a developed nation to a developing country, further enabling the latter to improve its production abilities. Meanwhile, another agreement enables a nation to buy products from one country and sell it to the other one at a profit margin.
- More job opportunities: The world of global trade and finance has also helped in the creation of hundreds of skilled and unskilled jobs worldwide. It has been noted in the past that countries that trade with each other have generated more professional opportunities compared to their non-trading counterparts.
Disadvantages of global trade
Just like every coin has two sides, so does global trade. If not done with the right checks and balances, you can face grave consequences while operating in the global market.
- Over-dependence: Depending too much on a specific country for your basic needs can, at some point, backfire. For instance, you majorly depend on India to meet the demand for onions, potatoes, and carrots in your nation. What if the crop in a particular year fails? Your import quantities will significantly reduce, increasing the prices in the market and causing havoc among the general public.
- High transportation cost: Global market is an excellent platform for countries to buy high-quality products at cheaper rates. But, what about the transportation cost? Many a time, transportation of such goods increases the prices, leaving you with lesser saving margins than expected.
- Risk and uncertainties: Global trade is subject to unforeseen events which can disrupt your entire trading system and even cause huge losses.
- Trade restrictions: Government-initiated import, export, and many customs restrictions also serve as a disadvantage to global trade.
- Trade process difficulties: It’s fairly difficult to manage all the documentation work, currency exchanges, providing the right information, and easily getting remunerated in the global trade market. You need to have your concepts clear to trade in the world market.
- Lack of proper understanding of the international trade markets: Not many countries, let alone businesses understand the basic nitty-gritty of the international trade market. This sometimes makes it difficult to conduct fair and accurate trade.
Despite so many disadvantages, the global trade market, over the years, has significantly matured and will continue to flourish and prosper enabling world economies to stay connected and help one another to meet their respective demands.
Leading export and import countries worldwide in 2020
As per global trade website Kanoema, China tops the list of leading global exports in 2021. The value of its exports as of May 2021 amounts to approximately USD 2.6 trillion. Following the Asian country, the United States stands second in the list with Germany taking third. As of May 2021, they’ve exported goods worth USD 1.44 trillion, USD 1.38 trillion, respectively.
Comparing the global trade statistics for imports, Bahrain tops the list as one of the largest importers in the world. It registered imports worth USD 1.1 trillion as of May 2021. Following the list stands Vietnam, the United States, and China recording imports worth USD .26 trillion, USD 0.228 trillion, and USD 0.003 trillion, respectively as of May 2021.
Also Read: A Complete Guide for Importing into the US
Most traded commodities in the world
Here’s a list of the most traded commodities across the globe, as of May 2021.
- Pharmaceuticals and medicine manufacturing
- Oil and gas exploration and production
- Apparel manufacturing
- Car and automobile manufacturing
- Global plastic product and packaging manufacturing
- Auto parts and accessories manufacturing
- Consumer electronics manufacturing
- Paper and pulp mills
- Semiconductor and electronic parts manufacturing
- Global iron ore mining
The impact of COVID-19 on global trade
The economic and social disturbances triggered by the outbreak of the COVID-19 pandemic have caused a substantial reduction in world trade. In 2020, none of the major economies of the world were spared by the coronavirus.
Already on a downward trend, international trade fell further in Q2 2020 showing a dip of about 19% compared to Q2 2019. While the trade market did show some growth in Q3 of 2020, the overall global trade value remained negative. It showed a decline of about 4.5% on a year-over-year basis.
The world economies are still recovering from the aftermath of the coronavirus pandemic and trying to restore the global trade balance. But, reports and global trade statistics suggest that economies will take some more years to recover and make the trade graph move in the positive direction. If you’re keen on learning more about global trade and stay abreast with what’s happening in the import-export industry, watch this space for more updates.