Who Dominates Global Trade?
It's not the United States anymore...
Contrary to what many Americans may think, America no longer dominates global trade. Here’s data as of 2021.
China is #1, America is #2 in global trade, and Germany is a distant third. However, I put every European Union nation in orange. Since we are talking about global trade, it would make more sense to think of nations in trade blocs. If we reexamine our global trade stats, the European Union is #1 by far, and America is number 3. (I also included Taiwan and Hong Kong as part of China since they are both recognized as Chinese territory).
"Three major regional trade hubs are apparent: The European Economic Community (EU + UK), East Asia (China, Japan, & South Korea), and NAFTA (US, Mexico, Canada), while India and Russia have not achieved the same level of trade as these hubs."
Regional Globalization rather than Even-Handed Globalization has been the defining economic area of our time. Not all regions are equal. East Asia & Pacific, The European Economic Community, and North America are the three major trade hubs, and are responsible for approximately 85% of global trade. The rest of the world: Latin America, Africa, the Middle East, Russia & its former Central Asian proxies, and South Asia make up the the remaining 15%. Most trade is of intermediate goods, which is why industrialized zones make up the majority of trade. Middle East, Africa, Russia & Ex-Soviet Union, Latin America, are predominately food and commodity exporters. Selling raw materials is at the very beginning of a supply chain where component and intermediate manufacturing is the “meaty middle”.
Not only do these 3 regional hubs dominate trade, but they also are highly interdependent on their region. 59% of Asian trade is within Asia. 66% of European trade is in Europe and roughly 40% of North American trade is in North America. When it comes to Latin America & Africa, more trade is extra regional than interregional. Out of the three mega hubs, NAFTA is the least intertwined compared to East Asia & Oceania and the European Economic Community.
How did this happen?
After reluctantly losing its empire post-WW2, Europe began integrating through a series of treaties that focused on trade, resulting in the formation the European Economic Community, the Eurozone, and the European Union. Now Europe now has foundational institutions, regulations, and courts that govern across countries and is more of a unified market. This has helped lead European firms to dominance in industries such as drug firms, exemplified by Swiss Novartis and British AstraZeneca, car parts companies such as German Bosch, and airplane manufacturing with French Airbus and German automobile brands like BMW and Volkswagen.
Asia’s integration was not spread thru European Style treaties, but rather business led by CEOs from the 1st Asian industrialized nation and former aggressor of region - Japan. As Japan reindustrialized, Japan invested factories in Taiwan, South Korea, Hong Kong, and Singapore for cheap labor to make Japanese cars, TVs, and shoes. South Korea and Taiwan developed manufacturing titans while Singapore & Hong Kong became financial hubs. Lo and behold, these countries became the Asian tigers, and as these nations industrialized and wages grew, they needed cheap labor. So Japan + Asian tigers started investing in Malaysia, Indonesia, Thailand, and the Philippines. Now Malaysia, Thailand, and Indonesia are upper-middle income (incomes from $4500 to $13,000). Meanwhile, Philippines is lower-middle income on the verge of upper-middle income status.
After Mao died, and Deng opened up the economy for investment with its Special Economic Zones in the late 70s, and early 80s, China became the factory not just for the West but for East Asia as well. Today, Taiwanese Foxconn, South Korean LG, and Chinese Lenovo produce millions of smartphones, LED lights, and computers.
North America, which isn’t as integrated as East Asia nor the European Economic Community, started to integrate with NAFTA, and then the USMCA. This allowed American manufactures to by components and assemble parts from Canadian & Mexican suppliers: from phones, to cars, to TVs. NAFTA helped aerospace firms like Honeywell and United Technologies and Medtronic in medical equipment.
In conclusion, the European Union and East Asia dominate trade in the #1 & #2 spots. Part of their dominance is due to their high levels of regional integration. But what is the political ramifications of this? Is America willing to integrate more of its economy with Mexico and Canada? Will there be a movement of more flexible labor, immigration, and business policies in North America? Will their be a move to a common currency?
The answer to all these questions is probably not with the current American Congress. America will probably pursue a strategy of building the best new industries in America with American workers. This seems to be a bipartisan consensus. But in terms of the rest of the world, it shows that organizations like Latin America’s Mercosur, South Asia’s SAARC, Russia’s Eurasian Union, and the African Union should take regional trade more seriously.
Source:
All data from OEC, graphs & charts created by me
Internal transport links and/or internal security are required in certain parts of Africa to facilitate integrated trade. Products to be sent along these links are needed too. Very little currently exists apart from basic food and energy both in and out.
A lot needs done but if it is then ..