Importance of emerging markets in global trade in goods
Contrary to popular belief, it is not only highly developed countries such as the USA or Japan that are the most important players in international trade. Countries and regions that cannot compete directly with the economic powerhouses, but offer great potential for both exports and imports, are beginning to play an increasingly important role. We discuss the importance of emerging markets in the global trade of goods!
Emerging markets – what are they?
Emerging markets is a term used to refer to selected countries and regions that are distinguished by characteristic features of economic development. The concept is not clear-cut, as it applies to a variety of countries, mainly from Asia and Central and Eastern Europe. These include countries at a fairly high level (e.g. China, Russia), as well as at a medium level (e.g. Brazil, Indonesia) or even at a weak level, but showing a high economic growth rate (e.g. Vietnam, Malaysia).
Countries in this category are an attractive place to invest capital, as they offer great potential for various investments, including trade. Targeting emerging economies provides access to a huge market of potential consumers who are becoming middle class and starting to get rich. This is a great opportunity, but, of course, trade with such countries is also not without its challenges, relating to, among other things, local regulatory, tax and customs systems, or changes in exchange rates.
What role do emerging markets play in international trade?
Emerging economies increased their share of global trade from 24% to 40% between 2000 and 2012. China alone contributed about half of this growth. Over the past decade, the share of emerging economies in global trade has changed very little, but nevertheless the outlook for future years is promising.
While trade is growing faster in emerging economies, developed economies are maintaining the strongest growth. In the future (up to 2026), economists nevertheless believe that the majority of trade growth, or 55%, will be in developed economies, compared to 45% in emerging economies.
It is also worth noting that the range of products traded by developed and emerging economies is changing. Emerging economies are becoming increasingly important importers of raw materials, as well as exporters of exclusive capital, intermediate and consumer goods. However, it is important to consider that they still need to focus on developing a number of issues such as connectivity or innovation. In line with future changes in trade patterns, it is likely that there will be a shift towards not quantity but better quality of goods produced in these countries.
What impact is the current global situation having on emerging markets?
The series of “shocks” experienced by the global economy has taken its toll on developed countries in particular. The associated sharp increases in electricity, gas and fuel prices are particularly detrimental. Faced with this situation, emerging markets offer the potential to help transform the face of global trade.
From 2016 to 2021, China generated a quarter of global trade growth. They are projected to reach their highest growth again between 2021 and 2026, but their share is expected to halve to 13%. In the wake of the outbreak of war in Ukraine, the emerging markets also suffered (there were capital outflows of as much as USD 120 billion), but China was the worst affected. The second largest outflow of funds was observed in India (over USD 25 billion). Interestingly, some countries classified as emerging markets did not see a major outflow of investment, including Chile, Hungary and Poland.
However, new poles of trade growth are emerging in South-East Asia and South Asia, and growth is also expected in sub-Saharan Africa. Trade between Gulf countries and East Asia is also expected to increase in value – it is expected to be worth more than that with developed economies, namely the US, Europe and Japan, among others.
According to the researchers, the centre of gravity of global trade will start to shift southwards after years. In fact, emerging Asian and Gulf countries have recently strengthened bilateral relations. For example, in February 2022, India signed a Comprehensive Economic Partnership Agreement with the United Arab Emirates, its third largest trading partner (which is also continuing bilateral negotiations for a similar agreement with the Philippines).