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Take the Quiz: International Trade Trends in 2018

By Karen Lynch

2018 was a trying year in international trade. Discord among trading nations and a throttling back of trade growth forced companies to recalibrate their import-export strategies. Yet, bright spots dotted the landscape, as well. For a quick refresher on the year, take this short quiz.

1) What percent of U.S. exports are services rather than goods?

 

a) A third
b) One-tenth
c) Half
d) None of the above

 

ANSWER: A third. The U.S. has the world’s largest surplus of international trade in services, with $689 billion in services exports during the first 10 months of 2018, for a surplus of $226.2 billion. (Trade in goods is another story, with $1.4 trillion in merchandise exports in the same period, for a deficit of $729 billion).1 “With their increasing tradability and their rising importance as inputs to traded goods … services are poised to play an increasingly vital role in the United States’ economic growth and trade,” according to the Deloitte professional services firm.2 Globally, services trade is growing 60 percent faster than trade in goods, according to the McKinsey management consulting firm.3

 

2) True or False. Global trade has returned to normal following the Great Recession.

 

ANSWER: False. 2018 marked the 10th anniversary of the Great Recession, during which international trade fell hard. In 2009 alone, the volume of goods exported worldwide plunged 12 percent and services trade declined 9 percent.4 Ten years later, “it is increasingly clear that there will never be a return to the ‘old normal,’” according to a paper produced for the recession’s anniversary by the Chatham House, a public policy research center.5 Recent statistics show a tentative recovery, in terms of global trade volume and value. Still, businesses have changed the way they finance international trade, including the rise of open account trade. They have changed the way they conduct trade, as global digital platforms have emerged to provide international trade, finance, marketing, and logistics support. And, the Great Recession triggered protectionist and anti-globalization sentiments that linger today.

 

3) Fill in the Blank: What big trade agreement took a giant step forward in 2018? ________________

 

ANSWER: The CPTPP. The 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, formerly TPP) entered into force at the end of 2018. So, the first seven countries that ratified the trade pact now benefit from lower tariffs and less administrative friction when crossing borders. Some American companies have expressed concern about being on the outside of the new trade bloc, whose ratified members now include Australia, Canada, Japan, Mexico, New Zealand, Singapore, and Vietnam (with Brunei, Chile, Malaysia, and Peru expected to ratify later).6 Accession to the trade bloc by additional countries, possibly including the U.S., is under discussion.7

 

4) How much of today’s international trade is driven by companies’ search for low-cost labor?

 

a) A third
b) Half
c) Three quarters
d) None of the above

 

ANSWER: None of the above. Only 18 percent of global goods trade is now driven by labor arbitrage, McKinsey says. For various reasons, including rising consumer markets in Asia, this share has declined in many value chains over the last decade, reversing a trend of the previous 10 years. The pattern is uneven across geographies, though. The U.S. increased its share of imports from low-wage countries from 47 to 53 percent from 2007 to 2017, while the share dropped 3 percent in the European Union.8

 

5) True or False? The strong U.S. dollar is bad for small and midsize enterprises (SMEs) doing import-export business.

 

ANSWER: It depends – and it’s complicated. In 2018, the dollar strengthened against other currencies; the Federal Reserve’s Broad Index (against a large group of major U.S. trading partners) recorded a 9.7 percent increase by the end of the year.9 The downside is that the dollar’s rise could harm the competitiveness of SMEs’ exports, and overseas earnings also translate into fewer dollars10 – though some U.S. companies could demand business-to-business (B2B) payment from abroad in dollars.11 On the upside, if SMEs manage to sell the same amount of exports despite the stronger dollar, it could increase their returns.12 A stronger dollar could also lower the cost of SMEs’ imports of raw materials and components. Meanwhile, an SME’s domestic customers may have more disposable income in their pockets, from lower overall consumer prices, to buy more of its goods at home.13

 

6) How have CEOs’ views changed over the past year on the prospects for global growth?

 

a) About the same
b) More optimistic
c) Less optimistic
d) Much less optimistic

 

ANSWER: d. In an annual CEO survey published in January 2019, the PwC professional services firm painted a gloomy picture. CEOs had hailed the prospects for global economic growth in 2017. A year later, almost 30 percent predicted a decline in global growth (up from 5 percent). Thirty percent also saw trade conflicts and protectionism among the top 10 threats to their company’s growth.14

 

7) Fill in the Blank. _______________ has been growing much faster over the past year than international trade.

 

a) The price of oil
b) Global GDP
c) Cross-border e-commerce

 

ANSWER: c. That one was too easy, perhaps, given slowing GDP growth15 and current oil price volatility.16 Market research firm Forrester anticipates cross-border business-to-consumer (B2C) e-commerce alone to reach $627 billion in sales by 2022, with global B2C commerce (both domestic and cross-border) growing in double-digits annually.17 McKinsey says international business-to-business (B2B) e-commerce could be six times as large as B2C.

 

The

Takeaway:

These quiz answers make clear that even as digital technology makes cross-border e-commerce easier than it ever has been before, global trade and macroeconomic factors add significant uncertainty that complicates a SMEs’ ability to actually conduct international trade.

Karen Lynch - The Author

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.

Sources

1. “Monthly U.S. International Trade in Goods and Services, October 2018,” U.S. Census Bureau; https://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf
2. “Trade in Services: Vital to U.S. Economic Growth,” Deloitte; https://www2.deloitte.com/insights/us/en/economy/issues-by-the-numbers/trade-in-services-contribution-to-economic-growth.html
3. Globalization in Transition: The Future of Trade and Value Chains, McKinsey; https://www.mckinsey.com/~/media/mckinsey/featured%20insights/innovation/globalization%20in%20transition%20the%20future%20of%20trade%20and%20value%20chains/mgi-globalization%20in%20transition-the-future-of-trade-and-value-chains-full-report.ashx
4. “International Trade Statistics 2015,” World Trade Organization; https://www.wto.org/english/res_e/statis_e/its2015_e/its15_highlights_e.pdf
5. “The Lasting Effects of the Financial Crisis Have Yet to Be Felt,” Chatham House; https://www.chathamhouse.org/expert/comment/lasting-effects-financial-crisis-have-yet-be-felt
6. “Opportunities Open Up as CPTPP Trade Pact Enters into Force,” The Straits Times; https://www.straitstimes.com/asia/east-asia/opportunities-open-up-as-cptpp-trade-pact-enters-into-force
7. “The CPTPP Enters into Force: What Does it Mean for Global Trade?” White & Case; https://www.jdsupra.com/legalnews/the-cptpp-enters-into-force-what-does-28682/
8. Globalization in Transition: The Future of Trade and Value Chains, McKinsey; https://www.mckinsey.com/~/media/mckinsey/featured%20insights/innovation/globalization%20in%20transition%20the%20future%20of%20trade%20and%20value%20chains/mgi-globalization%20in%20transition-the-future-of-trade-and-value-chains-full-report.ashx
9. “Foreign Exchange Rates, Nominal Broad Dollar Index,” Federal Reserve; https://www.federalreserve.gov/releases/h10/summary/indexb_m.htm
10. “How a Stronger Dollar Impacts the U.S. Economy,” Yahoo! Finance; https://finance.yahoo.com/news/stronger-dollar-impacts-us-economy-202816339.html
11. “How Do Companies Mitigate the Risk of Foreign Currency?” Houston Chronicle, https://smallbusiness.chron.com/companies-mitigate-risk-foreign-currency-73294.html
12. “What Happens to Exports and Imports When the Dollar Appreciates and Depreciates?” Bizfluent; https://bizfluent.com/info-8221802-happens-imports-dollar-appreciates-depreciates.html
13. “Small Caps Love a Strong Dollar,” Seeking Alpha; https://seekingalpha.com/article/4182021-small-caps-love-strong-dollar
14. “CEOs’ Curbed Confidence Spells Caution,” PwC; https://www.pwc.com/gx/en/ceo-survey/2019/report/pwc-22nd-annual-global-ceo-survey.pdf
15. “A Weakening Global Expansion,” International Monetary Fund; https://www.imf.org/en/Publications/WEO/Issues/2019/01/11/weo-update-january-2019
16. “Crude Oil Prices,” macrotrends; https://www.macrotrends.net/1369/crude-oil-price-history-chart
17. “Annual Retail e-Commerce Sales Growth Worldwide from 2014 to 2021,” Statista; https://www.statista.com/statistics/288487/forecast-of-global-b2c-e-commerce-growt/

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