India and China Learn the Tricks of Global Trade

Image: Sameer Pawar

An IMF paper on Changing Trade Patterns published in early February says that there has been a shift in relative importance in global trade, from large advanced economies such as Japan and the United Kingdom to emerging economies such as China and India. It will impact decision-making of businesses as well as policymakers.

• • China has emerged as the number one country, along with the United States, in systemic importance in terms of size and bilateral trade relations.
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• • There is high correlation between trade and financial interconnectedness. That means countries hosting systemically important trade and financial sectors such as the United States and Japan can spread economic disturbances through either channels to the rest of the world.
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• • The importance of global supply chains have grown so much that they now easily transmit shocks, including policy-induced ones.
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• • The resilience of supply chain relations may be tested by the recent earthquake in Japan.  A rethinking of the “just-in-time” production model may result in a re-orientation of production and sourcing networks in global supply chains.
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• • Compared to Europe or North America, global supply chains in Asia are more integrated regionally and their export structure is more intertwined, making them more vulnerable to country or product-specific disruptions.
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• • The free flow of goods underpinning the Asian supply chain could be disrupted because of bilateral tensions if key players such as China are excluded in regional free trade agreements.