Shifts in world trade

James Emmett, Global Head of Trade and Receivables Finance, HSBC

Over the past 30 years trade has transformed the

world

ver the past 30 years trade has transformed the world. It has been a powerful

tool for economic development and stability, delivering increased productivity,

accelerating growth and rising incomes in many emerging countries.
Today, as trade continues to reshape the world, we can see important new trends. One
of these is the increase in flexible supply chains, as companies source products from
multiple locations.
At the end of the last century there was decisive shift in manufacturing production, as
many firms chose to off-shore from West to East.
Now, companies are considering whether to near-shore or on-shore their production
capacity. This is because businesses are becoming more sophisticated in the way they
scrutinise risks and rewards.
The dynamics of labour costs are also changing. In many developing countries,
particularly China, there has been a sharp rise in wages. Energy prices are also making
it less attractive to transport goods long distances.
A second trend is that many economies are moving up the value chain. China is
shifting its exports towards technology and industrial machinery and away from lowgrade manufactured goods.
This opens up opportunities for nearby countries such as Vietnam to take on lower-value
manufacturing and production. It also provides new opportunities for developed nations
to supply sophisticated investment equipment to manufacturers.
Finally, there will be huge growth in the emerging-market middle classes. HSBC
estimates that by 2050 almost three billion people will have joined the middle classes,
mainly in emerging markets.
These new consumers are hungry for the brands and services that Western nations take
for granted. They are also driving demand for infrastructure. Today, there are more than
80 Chinese cities with a population of more than five million that still have no
underground rail system.

As countries move up the value chain they need to import basic commodities, building
equipment and high-end machinery. These are the building blocks for vast new cities,
providing homes, employment and transport for the new middle classes.
With greater flexibility in supply chains, higher-value production and the rise of a new
emerging-market middle class, we are at a transformational moment in the global
economy.
Impact of changes in global value chain:
- The increase in middle class and new demand from this market creates
opportunities for businesses to sell prods there where previously is mainly for
manufacturing things.
- Businesses also switch to other places offering lower price of production cost. ->
Trade is shifting. Thanks to trade agreement, trade blocks -> development of
country new capabilities.
- As China is moving up in value chain, flow of high technology and equipment will
be more significant here.
So changes in global trade bring about changes in global supply chain.