Ever since World War II, people around the world have become far more aware of the growing importance of international trade. In order to keep global economies thriving, organizations such as the World Bank and the World Trade Organization (WTO) have worked to encourage free trade among nations. The WTO has grown from 23 nations in 1947 to 160 today. The adoption of the euro as currency and the formation of the Eurozone in 1999, as well as the expansion of the European Union as more countries joined in the 2000s, helped streamline the process of trade among European nations. A series of regional free trade agreements such as the North American Free Trade Agreement (NAFTA) and the Central American Free Trade Agreement have opened borders and simplified international trade.
The past decade has seen even more accelerated change in world trade, thanks to the rapid acceptance of the Internet as a business tool. It was the Internet that sparked the birth of Alibaba in 1999, when Jack Ma launched the company with a mission: Use the Internet to help level the playing field for small businesses seeking to compete more effectively in both domestic and global markets. Here's a closer look at how the state of global trade has changed.
A Decade of Change
In the last 10 years, both Alibaba and international trade in general have seen rapid growth and transformation. Today, not only can buyers and suppliers communicate around the world via email, they can also hold videoconferences with each other instead of taking costly business trips, send and sign documents digitally instead of mailing or faxing them, and use GPS to track the progress of their shipments overseas. All these changes have drastically lessened the cost of doing business overseas, sped up business negotiations and reduced the risks of global trade.
As the Internet has made the world smaller and more connected, new regions have taken the lead in driving international commerce. For example, in the past 10 years, East Asia has emerged as a global powerhouse. The region's share of global manufacturing exports grew from one-fifth in 1995 to more than one-third in 2013, according to the United Nations.
China alone saw its share of global manufacturing exports rise to 17.3 percent in 2013, surpassing the United States to become the world's biggest merchandise trader, according to the WTO. Between 2005 and 2015, China's annual exports more than tripled, from $762 billion to over $2.4 trillion. As an example of how free-trade agreements have helped East Asian countries, the WTO's Information Technology Agreement, which removed tariffs from a variety of electronic products beginning in 1996, benefited China greatly. In 2000, Chinese exports made up about 7 percent of international electronics trade in the 25 countries in HSBC's annual Trade Forecast; today, China accounts for more than 33 percent of international electronics trade.
While the European Union still dominates international trade, developing economies have taken on an increasingly important role. Between 2000 and 2012, these countries' share in world trade rose from 33 percent to 48 percent. And between 2003 and 2013, trade between developed and developing nations grew substantially; by 2013 it accounted for about 40 percent of world trade.
Unfortunately, the global financial crisis that started in the United States in 2008 has also had an effect on global trade. While world trade grew at a rate twice the approximately world gross product (WGP) in the 20 years previously, the financial crisis caused a dramatic decline. International trade has since recovered, but its expansion has so far been relatively sluggish compared to pre-recession days. The U.N. expects trade growth of approximately 5 percent in 2015 and 2016, compared to averages closer to 10 percent previously.
As the developed countries slowed their exports during the financial crisis, developing nations began to gain ground. In fact, one possible silver lining of the economic slowdown was the increase in product offerings from developing nations, creating more diversity, more options for global product sourcing and more opportunities to work with new global trading partners.
Free trade agreements have historically boosted international trade, and more regional trade agreements are currently under discussion that may spark new growth in global commerce. For example, the Trans-Pacific Partnership agreement would set new, higher standards for regional trade agreements, and the Regional Comprehensive Economic Partnership would create a free-trade zone across 16 Asian countries including China and India.
While China has been relatively late to embrace free trade, having only reopened to foreign trade in 1979, the nation's leaders have realized that free trade agreements are key to maintaining its new status as the world's largest economy, manufacturer and merchandise trader.
Global Value Chains
One of the biggest changes in international trade in the past decade or so is the increasing importance of what are called global value chains. Essentially, a value chain refers to all of the activities involved in bringing a product to market, including manufacturing, marketing and distribution. Thanks to increasing globalization, it has become more common for value chains to be global—that is, the steps involved in the value creation process are often spread across multiple countries and continents. A product may be designed in the U.S. and then manufactured in China using raw materials from Africa.
Global value chains allow companies of all sizes to accomplish more than they otherwise could if they had to rely on only their own resources, skills and knowledge. Today, it's become the norm for companies based in one country to source products from another and sell them worldwide. Thanks to lower manufacturing costs, an interconnected world of business and increased ease of transportation, even the smallest companies can now get into the export/import game and compete effectively.
Just as free trade agreements are easing the way for businesses to "go global" by enabling companies to do business across borders with less red tape and fewer delays, Alibaba's huge marketplace of manufacturers and its enhanced Trade Assurance program are smoothing the path to success for global businesses of all sizes seeking to source innovative, profit-making products.
Alibaba's online sourcing marketplace enables everyone from one-person businesses to midsized companies to work directly with manufacturers all over the world to find the products they need. In addition, Alibaba's Trade Assurance program provides a safety net for these buyers by ensuring that their money is protected. When buyers choose a Trade Agreement participating supplier and enter into a contract, they can feel secure that their costs will be refunded if the supplier fails to meet the terms of the contract.
By allowing business owners to buy with confidence, Trade Assurance not only builds trust among buyers and suppliers on Alibaba.com, but also builds trust among buyers and suppliers around the world.
Looking to the Future
Looking forward, China will continue its key role in global trade, according to the latest HSBC Trade Forecast. The biggest change is that its growing middle class will make China not just a major exporter, but also an important consumer market. Saudi Arabia and Australia are among the countries already exporting to China, and HSBC predicts many more nations will join them in the coming years.
Although developed economies will continue to dominate in the near future, HSBC expects emerging economies to take the lead by 2030. That will mean a new world of opportunities for businesses to profit from, including new business partners, products and markets.
How will international trade transform in the next 10 years? While no one can say for sure, clearly there is plenty of reason for optimism.