U.S. Exports on Upward 16% Growth Trend through 2020, Boosted by Asian Trade

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Global trade, which has long been dominated by so-called "advanced economies," is now shifting permanently eastward, according to Ernst & Young's (E&Y) forecast "Trading Places: The Emergence of New Patterns of International Trade," which was prepared in conjunction with Oxford Economics.

"While the advanced economies muddle through the financial crisis, the rapid -growth markets are going from strength to strength and are an increasingly significant part of the global economy," said Jay Nibbe, an E&Y Europe, Middle East, India and Africa markets leader. "They will become an even more dominant force in global trade, and as a result businesses are going to have to adjust their strategies to reflect the increasingly regional pattern of world trade that is developing and will intensify over the next decade."

The continuing shift toward global outsourcing of production, as well as the growth of regional supply chains to serve the rapid expansion of demand from rapid-growth markets, will compress the share of the advanced economies in global trade from a little more than 60% in 2010 to about 55% by 2020.

Asia will continue to be the most dynamic region in terms of trade, with the fastest growth of exports in goods occurring within the region itself. India and China will drive the continued rise of the emerging markets, and together these economies will account for almost one-fifth of global trade flows by 2020.

At more than $1 trillion, China's current exports to Europe will be almost twice as large as U.S. exports to Europe. Europe's exports to Africa and the Middle East, at more than $900 billion, will be about 50% larger than its exports to the U.S.

Two of the most rapidly growing trade routes will be the U.S. exports to China and India, which are seen growing at an annual average rate of almost 16%. So while the U.S. share of world exports fell significantly in the past decade, the forecast implies that this trend will be reversed over the next 10 years as the U.S. capitalizes on its strength in Asian exports.

Europe's share of global exports will decline, from 38% in 2010 to 34% by 2020. However, reports E&Y, Europe is the developed region that will gain most in terms of export values from the expansion of demand in China, with exports to China rising by more than $370 billion over the next 10 years.

The forecast shows that trade within Europe is still expected to experience the largest increase, by far, in dollar volumes over the coming decade. The second-largest increase in overall trade volumes is forecast to be between China and the rest of Asia, according senior economic adviser, Rain Newton-Smith.

Exporters from emerging markets--Asia in particular--will capture the lion's share of export growth in Africa. Total exports to Africa are forecast to grow more rapidly than exports to the U.S., Europe, Japan and the rest of the Americas.

The machinery and transport equipment sector, including consumer electrical products and industrial machinery, will make the greatest contribution to trade growth over the next 10 years. They will be followed by other manufacturers, such as textiles, lumber and rubber. These sectors will account for up to 54% of merchandise trade by 2020. This reflects strong growth in demand for consumption and investment goods expected from emerging markets, as well as the potential to fragment the supply chain, as companies increasingly produce components in different locations.

Newton-Smith said alternative scenarios and risks could threaten or boost global trade growth for the current 2020 forecast. The most dramatic would be a currency realignment scenario implying rebalancing of domestic demand between the U.S. and the Asia-Pacific region. This would have significant impacts on projected patterns of trade. Alternatively, even a partial acceleration of trade liberalization could drive a larger-than-expected increase in global trade flows.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.