6 things to know about global trade in 2016

If anything encapsulates our complex, uncertain, uncooperative world in 2016, it’s trade. For decades seen as a powerful force for good – enhancing growth, competitiveness and living standards – trade made greater integration within the global economy seem more or less inevitable.

But it hasn’t benefited all participants equally, and while hundreds of millions of people have been lifted out of poverty by the global economic growth it engendered, trade has laid waste to entire industries, stripping away livelihoods and hopes and helping give rise to an upsurge in nativism and nationalist politics.

Finding ways to retain the positive aspects of trade and investment will now be a key priority for leaders. With big-ticket trade deals taking years to negotiate and seemingly months to unravel, options may remain limited. However, the new Global Enabling Trade Report nevertheless provides some insight into some of the ways trade can be optimized to empower entrepreneurs, boost growth and drive social progress.

Here are six things we learned from this year's report, which was last published in 2014.

1. It’s worth bothering to find ways of enabling trade, because economies that do it well tend to be wealthy. Alongside Singapore and Hong Kong, both successful trading hubs, the other economies in the top 10 in our Enabling Trade Index are all in the European Union. From the chart below, we see a strong correlation between GDP per capita and our Enabling Trade Index, regardless of the level of income or the region (some of the outliers can be explained by the fact that commodity-dependent economies tend to do less well on average and this is also covered in the report).

2. It would be a mistake to assume that the current antipathy felt towards trade in Europe and the United States is uniformly spread across the world. In developing and emerging economies, there is a huge demand to become better integrated into the global economy. The graph below illustrates how much of the global population live in countries relatively closed off from international trade, which affects their access to foreign goods and, of course, their ability to move up the value chain by exporting to richer countries.

It’s a fact that many of the world’s most populous countries are also among the worst when it comes to enabling trade – only China out of the 10 most populous countries falls in the top half of the index’s ranking this year. This may be partly explained by the fact that these countries have larger domestic markets that make trade less important; nevertheless their potential for greater growth would be enhanced through better access and openness to foreign markets.

3. When it comes to countries’ openness to imports, it would be lazy to suggest that all advanced economies are more open than developing or emerging ones. On the contrary, the below table shows some glaring exceptions to this rule. Each tile is weighted according to GDP by purchasing power parity, and we see market access conditions in some major global economies – the US, the United Kingdom and even the Netherlands – undermined by complex tariff structures. Emerging and developing markets have their champions too: Chile, Mexico and the Philippines all punch above their weight when it comes to opening up their domestic markets.

4. The global trade landscape is shifting east. The table above, which plots the progress of individual regions (or sub-regions) between 2014 and 2016 across all seven pillars of our index, gives you a good view of where the most – and least – progress is being made. Ongoing integration in ASEAN sees the bloc making more progress than any other region in terms of domestic market access. Improvements to the efficiency of border administration – long viewed as an easy win when it comes to the potential to help traders for very little financial or political outlay – is not at nearly fast enough, however. Perhaps inevitably, the only area of trade facilitation that has seen improvements in every region is information technology. But as digital infrastructure rises, others fall: transport infrastructure and services have deteriorated worryingly over the past two years.

5. Money is no measure of success. While it’s true that the more advanced economies tend to rank higher in this year’s Enabling Trade Index – and benefit most from trade, when it comes to openness – this is not the case for all categories of success. Among the most “generous” countries (i.e. those for whom the discrepancy between tariffs-applied-to-imports and tariffs-paid-for-export is the greatest) include some emerging markets, too. While the top three economies in the below table might not come as any surprise, the fact that Mauritius and Georgia score higher than the EU, frankly, does.

6. Administration can lead the way in helping traders and small enterprises grow their businesses without the need for complex trade treaties. Focusing on three individual case studies in Africa, the report highlights how opaque, expensive and unreliable current processes can be. This is despite the fact that some countries in Africa – Botswana, Rwanda, South Africa and Kenya – are powering ahead. (Interestingly, many of these trade champions are in the south and east of the continent, where integration has been moving more rapidly). Other charts in the report that map customs transparency, bribery and red tape are equally dismal.

One final takeaway from the report is that inclusive growth strategies are vital when it comes to mediating the harshest effects of trade. These must include education and training, and great effort to ensure that gainful employment is created in those circumstances where large-scale job displacement occurs. This is because, even if world trade does get smaller and global value chains shrink, any industry that becomes re-shored will not bring as many jobs home with it as the number it left behind initially.

Read the Global Enabling Trade Report 2016 here
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