China emerges as largest trading nation
decades the United States was the leading trading nation in the world. In other words, the US was the country in the world with the largest combined amount of exports and imports. Six months ago the situation changed. China has surpassed the US in terms of total trade levels, becoming for the first time the world’s largest trading economy. In 2012, the total level of US exports and imports amounted to $3.82 trillion, while China’s trade levels totaled $3.87 trillion for the year. The trend is set to continue, as the spread between the sum of the last 12 months of trade continues to widen, from $44.8 billion in December to $111.2 billion in February. The catch up of China has been ongoing since the country decided to open its economy in 1990, but it picked up a decade ago.
Several reasons explain this trend. First, China’s export growth started rising much faster following its accession to the World Trade Organization. In the US, the manufacturing sector weight in the economy halved between 1970 and 2010, with decreasing export growth and factories moving to Asia. On the imports side, the divergence picked up in recent years. The Chinese model of growth based on investment and manufacturing for exports has been very intensive, supporting the increasing the increase in imports of energy and inputs, particularly in the aftermath of the 2008 crisis. The US on the other hand has developed new technologies, particularly in the extraction of shale gas, that has reduced its energy dependency, slowing imports down.
China became the world’s top exporter in 2010, overtaking Germany. Imports in the US are $420 billion larger than imports in China, but the difference in 2008 was a trillion USD. At its current pace, China will overtake the US as the top importer of the world in less than four years. However this adjustment will probably take place even earlier, supported by various factors. First, China has chosen to navigate the ongoing global economic deceleration via rising investments. Important construction-related investments have been announced for 2013. The country’s much needed infrastructure development will require a heavy use of fuel, raw materials and capital goods, boosting imports.
Secondly, the new Chinese leaders are focusing on transitioning the economy from an export-reliant to a consumer-driven economy. As China moves up in the supply chain and higher wages drive lighter industries elsewhere, consumption will have a greater role in the economy which will require an increase in the import of consumer finished goods.
China is already the largest market for automobiles in the world and 90% of those cars must be imported. Furthermore, millions of citizens moving every year into cities, becoming part of a fast growing urban middle class, increasethe need for the country to import more high-level products.
China is on its path in becoming the largest consumption-based economy, but what does it mean for the rest of the world? It means that China will become an even greater driver of global prices, particularly as commodity prices, and will reinforce its central role in the world’s economy. The US will have to become more innovative to remain competitive, through industrial and technological pioneering.
The ongoing shale gas revolution is a good example of the path that the US should follow. For the GCC, it will ensure that demand for oil is high in the coming years in spite of falling demand from the US. Asian demand will accelerate the need for high-end energy-reliant goods. Sectors that will support the demand for the Gulf’s energy products range from utilities and housing appliances to the transport sector.
For example, China ranked 111th in the world in 2012 for the number of cars per capita (85 cars per 1000 people): there is a lot of room for an increase in the ratio, which would significantly strengthen the Gulf’s trade links with China. China will inevitably play a greater role in the Gulf. These regions are bound together for the decades to come.