Trade Growth to Slow in 2012

In our weekly news roundup a couple of weeks ago, we briefly reported on the World Trade Organization’s trade figures for 2011. Because global trade is an important topic for supply chain professionals, I thought it was worth digging just a bit deeper.

As reported in the WTO press release, “World trade expanded in 2011 by 5 percent, a sharp deceleration from the 2010 rebound of 13.8 percent.” These figures are in “real” or volume terms — i.e., they are adjusted to account for inflation and changes in exchange rates. WTO economists attributed the global economy slowdown to a number of shocks: the European sovereign debt crisis, the tsunami in Japan, floods in Thailand, etc.

Even so, 5 percent growth is faster than many Western economies are growing. And it is a considerable bounce back from 2009 when global trade actually shrank by 12 percent at the height of the economic slowdown.

Global trade is growing at a pace below the historical growth rate of 6 percent from 1990-2008. In short, globalization is not going away, but it is not growing as fast as it used to. And the WTO economists believe that Europe is probably already in a recession, and so they expect trade to grow less than 4 percent next year.

If you look at the charts of leading exporters and importers, it probably would not surprise you to learn that China is the largest exporter of goods. It might surprise you, however, to learn that the US is the second largest.

Actually, as I look at the trade figures for goods and services, and I look at the percentage by which exports exceed imports, China’s surplus does not seem outrageous. China exports 5 percent more than it imports.

The US does not fare so well. US exports are 29 percent below what it imports, which is a problem.

If you pay attention to the news, you also know that the economies of developing countries are growing faster than the economies of developed countries. GDP growth is strongly correlated with trade growth, so it is not surprising that trade in developing countries is also growing faster than trade in developed countries. This growth is putting pressure on global commodity prices. The average price for a barrel of crude oil between 2005 and 2011 was $76. Last year it averaged $104 per barrel.

As Chris Merritt of Ryder pointed out in his guest commentary last Tuesday, transportation costs are going to rise faster than warehousing costs for the foreseeable future, so companies need to reflect this in their supply chain budgets next year.

It is worth knowing the trends surrounding globalization. However, at the level of an individual company, these trends may not be so meaningful. Does it make sense to near shore or even bring production back to the home country? Which suppliers will be the most risky to work with and how will that reflect on the country where they operate? How will emerging trade agreements and tax rates affect where my company should manufacture? Companies need to address all of these questions on an ongoing basis. At the company level, microeconomics trumps macro.