Value chain growth drives global economy

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First we had off-shoring – and the we had re-shoring and near-shoring. And we have also had a world financial crisis. Nevertheless, the latest analysis of global trading trends by the World Trade Organisation shows that the average share of exports and imports of goods and commercial services in world GDP has increased from 20 per cent to 30 per cent over the past ten years.

At the heart of this growth has been the growth in global production networks, or value chains. The WTO figures show that in 2011 49 per cent of world trade in goods and services took place within global value chains – that compares to 36 per cent in 1995.

And while the most obvious growth has been in the Far East, the study also highlights the way that countries like Hungary and Poland have joined manufacturing production chains for chemicals, transport and electrical equipment after joining the European Union.

The report points out that the advent of e-commerce has helped reduce trade costs. In 2013, it says, business-to-business e-commerce was valued at about US$ 15 trillion and business-to-consumer e-commerce at more than US$ 1 trillion, with the latter growing faster in the past few years.

Of course, these developments would be mere curiosities if they had no effect on the overall level of trade. In fact, world merchandise exports rose from $5.2bn in 1995 to $19bn in 2014. Exports of commercial services were up from $1.2bn in 1995 to $4.9bn in 2014.

The WTO report comes as the United States and the European Union are locked in negotiations over the Transatlantic Trade and Investment Partnership (TTIP). The European Commission reckons this deal could result in a €119 billion annual economic gain for the EU and €95bn for the US. This translates on average to an extra €545 in disposable income each year for a family of four in the EU.

There is lots of opposition to the TTIP, for a whole range of reasons. But ultimately, as the WTO figures suggest, the benefits of global supply chains growth is undeniable.

Malory Davies

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