INTERNATIONAL BUSINESS

PROJECT

TOPIC: Evaluate the trends in growth of merchandise trade and service trade and analyse it
composition
 TABLE OF CONTENT
SL NO CONTENT PAGE NO

1 Introduction 3

2 Merchandise trade and Service trade 4-5

3 Merchandise Trade Volume 6

4 Trade In Goods Between Developed And Developing Nations 7

5 Developing Economies 8

6 Composition Of Service Trade 9

7 Composition Of Merchandise Trade 10

8 Definition Of Commercial Services In The Balance Of 11

9 Trends In International Trade 12-15

10 India’s Foreign Trade 16

11 Conclusion 17

References 18

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 INTRODUCTION

International trade patterns of the last few years have been characterized first by anaemic growth
(2012-2014), then by a downturn (2015 and 2016) and finally by a strong rebound (2017 and 2018).
From 2012 to 2014 the value of international trade grew at a rate of less than 2 per cent per year,
declined by 10 per cent in 2015, and by about 3 per cent in 2016. It then rebounded strongly, growing
at 10 per cent in 2017. Preliminary data for 2018 indicate an even higher growth rate. The recovery in
international trade in the last two years was in part due to nominal factors and in part to increase in
volumes. In particular, the price of commodities regained ground and the United States dollar
depreciated in real terms against a basket of currencies. Stronger global output growth and investment
also played a role.
Trade growth of last two years has been widespread to include most goods and services sectors.
Merchandise trade has shown a particularly strong rebound after it dropped significantly in 2015-2016.
Services trade fared better during those years, and the recovery was also more gradual. Trade in
natural resources showed the strongest value growth in 2017 because of higher commodity prices. The
trade surge of 2017 also affected positively all geographic regions. South–South trade has recovered as
well, although it remains below its 2014 levels.

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Merchandise Trade

Trade in goods includes all goods which add to, or subtract from, the stock of material resources of a
country by entering its economic territory (imports) or leaving it (exports). This indicator is measured
in million USD. Goods are physical, produced items over which ownership rights can be established
and whose economic ownership can be passed from one institutional unit to another by engaging in
transactions. Goods being transported through a country or temporarily admitted or withdrawn (except
for goods for inward or outward processing) are not included.

Service Trade

Trade in services records the value of services exchanged between residents and non-residents of an
economy, including services provided through foreign affiliates established abroad. This indicator is
measured in million USD and percentage of GDP for exports, imports and net trade. Services include
transport (both freight and passengers), travel, communications services (postal, telephone, satellite,
etc.), construction services, insurance and financial services, computer and information services,
royalties and license fees, other business services (merchanting, operational leasing, technical and
professional services, etc.), cultural and recreational services, and government services not included in
the list above. Trade in services drives the exchange of ideas, know-how and technology, although it is
often restricted by barriers such as domestic regulations.

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World merchandise trade up 3% in 2018, lower than 4.6% growth in 2017: WTO

The volume of world merchandise trade, as measured by the average of exports and imports, grew 3%
in 2018, just above the 2.9% increase in world GDP over the same period but “significantly lower”
than the 4.6% growth recorded in 2017
The value of world merchandise exports was $19.48 trillion in 2018, up from $17.33 trillion in 2017,
partly due to higher oil prices.

However, merchandise exports of developing economies grew 11% in 2018 while imports increased
12%, continuing the positive growth of 2017 after a decline in 2015-16. Merchandise exports totalled
$8.22 trillion and imports $7.97 trillion in 2018.

Overall, developing economies’ exports and imports grew at a faster rate than those of developed
economies and the world, according to the report.

Developing economies in Africa and the Middle East showed the strongest export growth in 2018
which on the import side, Latin America, Africa and Developing Asia had double-digit growth in
2018.

India-dynamic trader

As per the report, over the 2008-2018 period, China, Vietnam and India were the most dynamic traders
among all Asian economies.

India entered the top ten global automotive exporters overtaking Brazil.

In services exports, India and Singapore have moved into ninth and tenth positions, overtaking Italy
and Spain in the last ten years.

India was the second-largest exporter of ICT exports in 2018, with China overtaking the US as the
third-largest.

In 2018, India was the eighth-largest services exporter and the tenth-largest services importer. The
WTO attributed this to rapid export growth in other business services for three consecutive years
(around 9%) and in telecommunications, computer and information services (7% in 2018) boosted the
country’s performance

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 Merchandise Trade Volume

The slowdown in the growth of merchandise trade volume in 2018 was broad-based, reflecting weaker
import and export shipments globally, although some country groupings were more affected by the
slowdown than others. Weaker trade growth was most evident in the fourth quarter of 2018, when
export volumes declined by 0.1 per cent and import volumes dropped 0.5 per cent .
On the export side, the slowdown was mostly due to reduced shipments from developed countries,
which contracted yearon- year in three out of the four quarters of 2018. On the import side, developed
countries recorded slow growth throughout the year, particularly in the first half. Meanwhile,
developing economies and the Commonwealth of Independent States (CIS) saw imports fall 2.1 per
cent in the final quarter of 2018

The volume of international trade in goods has increased dramatically in the last 10 years. In
spite of the financial crisis of 2009, developing countries as a group have almost doubled the volumes
of trade in goods since 2009. While import volumes have been growing relatively more than export
volumes for developing countries, the opposite has happened in regard to developed countries. The
relatively larger increase in the volumes of imports can be explained by the increase in consumer
demand in developing countries. Growth in trade volumes has slowed down substantially in the last
few years, especially in regard to developing countries, before picking up again in 2017 when imports
and export volumes grew at the highest rate since 2011 for this group of countries. In 2015, volume

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growth was negative in the case of China, both in relation to imports and exports. Volume growth was
positive in 2016, but only marginally so for most countries. Moreover, volume growth rates in
developed countries have generally outperformed these of developing countries in the last two years.
In 2017, imports and exports volumes growth in the United States and China recovered significantly,
with the latter being in double digits. European Union trade performance was robust in line with the
past years’ trends.
Developed countries’ relative importance as suppliers in international markets is declining. Still, they
account for about half of the value of exports of goods and about two thirds of exports of services. In
2017 developed countries’ exports of goods was about $9 trillion , while that of services added up to
about $3.5 trillion. In 2017, developing countries’ trade summed up to about $8.5 trillion in regard to
goods and about $2 trillion in regard to services. Of these, BRICS exported about one-third, $3 trillion
in goods and about $500 billion in services. LDCs’ contribution to world trade remains minimal,
although some increases in exports and imports of these countries have been recorded over the past
decade. The increase in goods exports in 2017 for this group of countries has been particularly strong.

Trade in goods between developed and developing nations

The increase in world trade during the last decade was largely driven by the rise of trade between
developing countries (South–South) . By 2014, the value of South–South trade had reached almost

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US$ 5.5 trillion, a magnitude close to that of trade between developed countries (North–North). The
substantial decline in trade of 2015 and 2016 hit developing countries relatively more than developed
countries, but in 2017 South-South trade saw a stronger rebound than other types of trade. The
significance of South–South trade flows for developing countries is evident when considering that in
recent years, they represented more than half the trade of developing country regions (imports and
exports). South–South trade share varies by region, from about 40 per cent in Latin America to almost
70 per cent in South Asia and East Asia. Although a certain proportion of South–South trade
encompasses intraregional flows, an important part involves trade with China. Since 2005, China has
become an increasingly important partner for all other developing country regions.

Developing economies

Merchandise exports of developing economies grew by 11 per cent in 2018 while imports increased by
12 per cent, continuing the positive growth of 2017 after a decline in 2015-16. Merchandise exports
totalled US$ 8.22 trillion and imports US$ 7.97 trillion in 2018. Exports and imports grew across all
regions in 2018, apart from imports of developing countries in Europe, which showed a slight decrease
of 1 per cent . Overall, developing economies’ exports and imports grew at a faster rate than those of
developed economies and the world. Developing economies in Africa and the Middle East showed the
strongest export growth in 2018. On the import side, Latin America, Africa and Developing Asia had
double digit growth in 2018.

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 Composition of service trade

With regard to services, travel, transport and business services represent the largest sectors, amounting
to about US$1 trillion each in 2017 . Other important sectors include IT, financial services and
intellectual property rights related services. Since 2005, the value of trade has increased in all sectors.
Trade has recovered in 2017 in most categories, notably in business, travel and transportation.
However, declines have occurred in the trade of government, cultural and recreational, insurance and
R&D services. Figure 9b depicts the share of global exports of different service categories pertaining
to developed and developing countries, and their change between 2005 and 2017. Although developed
countries still account for the largest part of exports of services, the export market share has been
shifting to the advantage of developing countries in many sectors. The exceptions have been
government and transport services for which market share virtually did not change

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 Composition of Merchandise Trade

Figure displays the value of world trade in 25 categories of goods. In terms of value, a large amount
of world trade relates to energy products (oil, gas, coal and petroleum products), chemicals,machinery,
motor vehicles and communications equipment. In contrast, light manufacturing sectors, including
textiles, apparel and tanning, comprised a much smaller share of world trade. Agricultural sectors –
which include food, vegetable and animal products, as well as oils and fats, and tobacco and beverages
– accounted for a total of over $1.6 trillion of trade flows, or less than 10 per cent of international
trade. The value of trade grew in 2017 in all sectors, especially in energy products. During the last
decade developing countries’ presence in international markets has increased substantially compared
with developed countries. Their export market share has increased across all sectors, and in particular
in machinery, non-metallic minerals and communications equipment.

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Definition of commercial services in the Balance of Payments

In the sixth edition of the Balance of Payments Manual, the current account is subdivided into goods,
services (including government goods and services, n.i.e.), primary income, and secondary income.
Commercial services comprise all services categories except government goods and services, n.i.e.
Commercial services are sub-divided into goods-related services, transport, travel, and other
commercial services.
The BPM6 contains the following 12 standard services components.
(1) Manufacturing services on physical inputs owned by others
(2) Maintenance and repair services, n.i.e.
(3) Transport
(4) Travel
(5) Construction
(6) Insurance and pension services
(7) Financial services
(8) Charges for the use of intellectual property, n.i.e.
(9) Telecommunications, computer and information services
(10) Other business services
(11) Personal, cultural and recreational services
(12) Government goods and services, n.i.e. Manufacturing services on physical inputs owned by others

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 TRENDS IN INTERNATIONAL TRADE

International trade’ recent cyclical pattern is evident by examining a commonly used indicator togauge
the status of international trade: ratio of the value of world trade in goods and services to the total
value of world output. This is a commonly used measure for globalization trends . This indicator has
fallen from just below 30 per cent in 2014 down to 27 percent in 2016. Global trade-to-output ratio has
returned to about 30 per cent in 2018. Forecasts for 2019 and 2020 indicate less spectacular growth in
international trade, although still above the levels of global output
growth. According to these projections, by 2020 the trade-to-GDP ratio will reach 31 per cent.
However,trade performance in the coming years is subject to substantial uncertainty because of
ongoing trade tensions among major world economies and the weakening of the multilateral trading
system, which could hinder cross border investment and increase the costs associated to international
trade.
The recent trade rebound of 2017 and 2018 was due to several factors. Primarily, the upward trendnin
commodity prices played an important role (oil prices have recovered strongly during 2017 and the
half of 2018). Another factor contributing to the increase in value of international trade was the United
States dollar. United States dollar index depreciated by about 10 per cent throughout 2017, therefore
driving up the value of international trade (because buying the same amount of goods requires more
dollars when the dollar is relatively weak). However, the price increases capture only part of the
increase in trade value in the past two years. International trade registered strong growth also when

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measured in volumes. The main volumes growth factor was a robust global output growth–shared by
most of the world economies—which helped stimulate broadbased investment growth.

While annual trade growth for 2018 is expected to be overall higher than trade growth of
2017, economic conditions have started deteriorating in the second half of 2018. While output growth
in developing economies in 2018 is expected to be at levels similar to 2017, growth in some of the
advanced economiesnhas already slowed and expected to slow even further in 2019. Overall,
economic growth forecasts are being revised downwards and international trade should follow suit.
The loss of momentum of the second half of 2018 is visible by examining monthly data from the
major economies. During the last few years the trade growth of the three major economies (China, the
European Union and the United States) has followed similar patterns. Overall, trade performance of
these economies strongly declined in 2015, started to pick up in 2016, and experienced a strong
rebound in 2017 and 2018. This pattern is illustrated in which shows monthly percentage changes in
the value of trade—measured as imports plus exports (on a year-to-year basis to correct for seasonal
factors). Data for all three economies shows a more subdued pattern for the second half of 2018 when
compared to the second half of 2017 and to the first half of 2018. The substantial slowdown in trade
growth is more evident for the European Union. This pattern is consistent with other high frequency
indicators, such as the purchasing managers’ index (PMI) and industrial production, whichall which
points to increasing economic weakness. Of interest is also that while overall trade performance in the
past years was similar for China, United States and the European Union countries, the data indicates a
different degree of volatility. In general, United States trade performance is characterized by lower
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volatility with smaller declines during 2015-2016 and more gradual recovery after 2017. On the other
hand, China and European Union trade values show relatively higher variance across all periods.
Looking at the latest data, United States trade performance was relatively stable at close to 10 per cent
annual growth during the most of 2018. European Union trade performance shows very high growth in
late 2017 and early 2018 (sometimes approaching 25 per cent), but a substantial slowdown thereafter
(European Union trade growth rate was on average less than 5 per cent between August and November
2018).
International trade largely relates to physical goods. Although increasing, trade in services
accounts for a much lower share. In 2017 world trade in goods was valued at above $17 trillion, while
trade in services accounted for slightly more than $5 trillion. In the wake of the global financial crisis,
trade in both goods and services promptly rebounded to reach pre-crisis levels by 2011. The value
of international trade in goods declined substantially in 2015 and 2016 before it recovered in 2017.
Nevertheless, trade in goods remains below its 2014 level. Trade in services has been more resilient
over the same period.

International trade can be broadly distinguished between trade in goods (merchandise) and services.
The bulk of international trade concerns physical goods, while services account for a much lower
share. World trade in goods has increased dramatically over the last decade, rising from about $10
trillion in 2005 to more than $18.5 trillion in 2014 to then fall in 2016 and rebound up to $17.5 trillion
in 2017. Trade in services greatly increased between 2005 and 2017 (from about $2.5 trillion to more

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than $5 trillion). The value of international trade of both goods and services declined substantially in
2015 and 2016 but have recovered in 2017 .
Following the strong rebound in 2010 and 2011, export growth rates (in current dollars) turned
negative both in 2015 and 2016 . They showed a strong bounce back to a positive territory – especially
for developing countries goods’ exports – but remain below pre-crisis levels.

Future Trends

International trade growth averaged at about 10 per cent in 2017, and preliminary estimates indicate
that growth has been even higher in 2018 (about 12 per cent). However, the performance of the 2017
and 2018 is not likely to continue in the immediate future. While part of such growth was fuelled by a
global upturn in output and investment, one determining factor of such strong rebound was the dismal
trade performance in 2015 and 2016. Another significant factor contributing to the growth in the value
of international trade in the most recent years was the recovery of commodity prices. These factors are
not expected to contribute to future trade growth, as global output over GDP is unlikely to increase
substantially more, and commodity prices are projected to stabilize or even slightly decrease in the
next few years. Moreover, the data for the second half of 2018 shows a loss of momentum, both in
relation to economic growth and international trade. This is more evident in some of the in advanced
economies. Another factor which could negatively impact international trade patterns during the
incoming years is the increased uncertainty related both to the international trading system. The
weakening of the multilateral trading system, the ongoing trade disputes between China and the United
States, difficulties within the European Union, and monetary policy normalization in advanced
economies will all weight down on the future patterns of international trade.

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INDIA’S FOREIGN TRADE

India’s overall exports (Merchandise and Services combined) in April-June 2019-20* are estimated to
be USD 137.26 billion, exhibiting a positive growth of 3.14 per cent over the same period last year.
Overall imports in April-June 2019-20 are estimated to be USD 164.50 billion, exhibiting a positive
growth of 3.57 per cent over the same period last year.

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 CONCLUSION

World merchandise trade grew by 3.0 per cent in 2018, slightly exceeding GDP. This was significantly
lower than the 4.6 per cent growth recorded in 2017. This loss of momentum is partly due to
increasing trade tensions and historically high levels of trade restrictions. The WTO’s latest trade
monitoring report confirms that trade restrictive measures are on the rise. Trade covered by import
restrictive measures recorded in the last trade monitoring report (mid-October 2018 to mid-May 2019)
is estimated at US$ 339.5 billion. This is the second-highest figure on record, after the US$ 588.3
billion reported in the previous report (mid-October 2017 to mid-October 2018). If trade is to pick up
in 2019-20, trade tensions must be resolved.
Trade continues to be concentrated. The ten leading traders in 2018 represented more than half of
world trade, with the top five accounting for around 37 per cent of global transactions. Developing
economies are playing an increasingly important role in world trade, with significant increases in their
rankings among the world’s leading exporters and importers. There are also increasing levels of trade
between developing economies. In 2018, this represented over 50 per cent of their merchandise
exports. However, the merchandise exports of the least developed countries remained at a meagre US$
193 billion, representing less than 1 per cent of world exports. In nominal terms, high energy prices
contributed to growth in merchandise exports in 2018. Exports of fuels and mining products grew by
23 per cent while manufactured goods and agricultural products grew by 8 per cent and 5 per cent
respectively. Overall, merchandise exports grew by 10.0 percent, down from 10.7 per cent in 2017. In
contrast, world trade in commercial services grew by 8 per cent, recording strong growth for the
second consecutive year. Goodsrelated services registered the strongest expansion, at 11 per cent,
while the weakest growth was in transport services. Worldwide networks for the production of goods
continue to grow in importance, with developing economies playing an increasing role. Asian
economies have become major players in global value chains. Viet Nam and the Philippines have seen
growth in GVC participation while for Singapore over 60 per cent of its trade involves exchanges
among GVCs.

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 REFERENCES

https://www.wto.org/english/res_e/statis_e/wts2019_e/wts2019_e.pdf
https://shodhganga.inflibnet.ac.in/bitstream/10603/175076/16/12_chapter%204.pdf
https://data.oecd.org/trade/trade-in-goods-and-services.htm

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