Asia is Reshaping the World’s Trade Patterns

Global output has continued to rise over the past decade but the share of goods traded across borders has fallen by 5.6 percentage points. This indicates that the world’s trade patterns are transforming and according to McKinsey Global Institute, Asia’s consumers are leading the change. As consumption rises, more goods produced in Asian countries are now sold locally instead of being exported to the West.

Many Asian economies, such as China today are driven by domestic consumption. Over the decade from 2007 to 2017, China almost tripled its production of labor-intensive goods. The share of gross output China exports on the other hand has dramatically decreased, from 15.5 percent to 8.3 percent.  Meanwhile, India has also been exporting a smaller share of its output over time.

Since 2015, consumption has contributed more than 60% on average to GDP growth in China. Trade is no longer the main driver of the Chinese economy. As the incomes of working individuals rise, Chinese urban consumers today are spending more especially on transportation and communication, education, and health care. They are potentially reshaping the global consumption.

The industrial capabilities in Asia is evolving. They are becoming less reliant on foreign imports of both intermediate inputs and final goods. Furthermore, Asian companies are now focusing more on speed to market and improving coordination and visibility across the entire value chain. As a result, supply chains are becoming shorter and more localized. Today, more than half of goods trade in the Asia-Pacific region is intraregional. Asia is reshaping the world’s trade patterns!

Reference:

1. Asia’s future is now, McKinsey Global Institute, July 2019

2. Jonathan Woetzel & Jeongmin Seong, China cares more about domestic consumption than us-china trade war https://qz.com