Deeper patterns in foreign trade

When I started this blog, I referred to the similarities between ecosystems and economies.  Here, I will make an ecologist’s observations on the patterns of world trade.  Foodwebs are an important tool in understandng ecosystems.  They are a list of species from which each species draws energy. That is to say, who eats whom. Economists make lists of countries from which each country draws income.  That is to say, who exports to whom.  Exporting and predating are not the same thing.  Every country values the cost, quality or sheer exotic nature of the goods that they import. However, exports like predation are active efforts which affect the position of the country/species in the overall system.  A successful exporter, like a keystone predator, establishes strong links in the world economy.

My dataset is a relatively simple one taken from the pages of The Economist’s Pocket World in Figures 2015 Edition.  I used the main export destinations of each of the G20 countries*.

Figure 1 demonstrates a number of simple truths about world trade. Namely, distance and size (of destination economies) matter.  We all tend to trade with our neighbours and with the larger world economies.The four largest trade flows (in red; greater than $250 B/yr) all involve the US.  The largest, unsurprisingly, is China’s exports to America.  They have just recently edged out Canada and Mexico as the biggest exporters to the US. American exports to Canada are also in this elite club. The remaining links in Figure 1  (in blue) are all greater than $50 B/yr.  They are clustered within Europe or between Pacific trading partners, with only Germany reaching out across the Atlantic. Brazil, India and Russia are all notably absent from these larger trade flows.

Figure 1: Main export flows in world trade (>$250 B in red,>$50B in blue)

 Figure 2 uses a foodweb calculation to look at second hand trading partners.  These are the economic connections that each country has with the trading partners of its trading partners.  We became most aware of these connections in the recent concerns over the exit of Greece from the Euro Currency zone.These links are not directional and include any flow of income between two countries that includes one intermediary trade partner.  Figure 2 is heavily weighted to the interactions among America’s main trading partners: Mexico, Canada, China, Japan and Germany. The links in red each represent 1/60th of world trade, while those in blue are half as strong.  The second hand effects of a collapse in the US economy, as happened in 2008, are readily apparent.  The US registers two second hand trading partners of note,

Figure 2: Second-hand trade connections                      

 Japan and South Korea, both of whom have close trading ties with China. The rapidly developing countries (except for China) again fail to register as having strong connections.

Two more thoughts about trade.  Firstly, recent trade agreements, like TPP in the Pacific and  TTIP in the Atlantic have sought to increase trade by harmonizing regulations across countries. With even a 10 % increase in trade between America and Japan or Australia and Japan, these agreements will start to shift trade patterns.  It is likely that they will increase the pattern of direct trade within both the Pacific and the Atlantic but create new second-hand trade links between Europe and Asia. Secondly,  the long term prospect for world trade is not encouraging with the increasing cost of energy as we shift away from carbon fuels.  The importance of distance in choosing export destinations will increase over time and result in weaker trade links around the world.  Some innovations that could circumvent this trend are the sale of services through the internet and the sale of products through the use of 3D printers.

The systemic nature of economies and ecosystems will continue to provide fuel for thought as we seek to manage both for sustainable supplies of food, fuel, fluids and fibre.

* Actually, I included Netherlands and Switzerland  and left out Argentina and South Africa.