• Global trade has disappointed over the past few years, with growth in the value of goods exported globally averaging only around 1.5% a year in 2012-14. But we expect the pace of expansion to accelerate towards 8% a year by 2017-20 as the global economy strengthens.
  • Significant risks remain that world trade will continue to undershoot expectations, however, reflecting a number of structural factors that are restraining growth. These include the restructuring of global supply chains and lack of progress in trade liberalisation.
  • Fortunately, there are good reasons to be optimistic regarding the potential for renewed progress on trade liberalisation in coming years, with negotiations on a number of important international accords close to being finalised.
  • One such example is the potential expansion of the World Trade Organization’s (WTO) Information Technology Agreement (ITA), an international accord to remove import tariffs on key ICT products. In light of the pivotal role of technology in the modern economy, this agreement could provide a significant boost to world output by increasing access to ICT products.

Renewed progress in trade liberalisation could boost growth in international export flows, presenting new economic opportunities and providing a significant catalyst for business expansion. Businesses that are responsive, productive and agile will be best positioned to capitalise for success.


Economic Outlook – Global merchandise trade has disappointed recently, with growth in the value of goods exported globally averaging only around 1.5% a year in 2012-14. Our forecasts indicate that growth will firm in coming years, however, pushing the rate of expansion to 8% a year on average over the period 2017-20. Nevertheless, this pace of growth would still fall short of the pre-crisis period, when growth in the value of global exports averaged around 9% a year.

The forecast strengthening of world export growth reflects our expectation of continued robust growth in the US, cyclical upturns in the Eurozone and Japan, and some improvement in emerging markets. Over the medium term, we believe the emerging markets will regain their role as the main drivers of growth in world exports, as their strong economic fundamentals imply good medium term prospects for growth in traded goods.

But significant risks remain that world trade growth will continue to undershoot baseline forecasts, especially given the structural factors at play. The first of these factors is the restructuring of global supply chains, including so-called ‘reshoring’ of production or shortening of supply chains whereby stages or elements of the production process previously farmed out to other countries return home. Evidence for reshoring has remained largely qualitative so far, but data do support the fact that trade in intermediate goods has been especially weak recently, which could be the result of reshoring or at least an absence of further offshoring.

A second factor that is in play is a lack of trade liberalisation. Poor progress in this area is in sharp contrast to the successes of the decade or so leading up to the global financial crisis. Some estimates suggest that trade liberalisation effects had a considerable positive impact on global trade in the pre-crisis period, contributing around 20% of the growth experienced in the period 1994-20041.

Fortunately, there are good reasons to be optimistic regarding the potential for renewed progress on trade liberalisation, with negotiations on a number of important international accords close to being finalised:

  • The WTO’s Trade Facilitation Agreement (TFA) has already been agreed and is awaiting ratification. The accord will reduce red tape and streamline customs requirements. Full implementation will take a number of years, but the OECD estimates that it has the potential to reduce trade costs by 12% or more2.
  • Negotiations are also underway to expand the WTO’s Information Technology Agreement (ITA). The ITA agreement guarantees zero-tariff and duty-free trade in around 250 electronics products, but the second phase of the agreement would add a further 200 products, covering global trade flows worth around $1.4 trillion.
  • The Transatlantic Trade and Investment Partnership (TTIP) is a proposed free trade agreement between the EU and the US. As well as seeking to eliminate simple trade tariffs, the TTIP aims to harmonise divergent regulatory standards that act as barriers to the free flow of trade and investment across the Atlantic. Estimates of the likely economic impact suggest that it could raise Transatlantic GDP by up to $210bn a year3.
  • The Trans-Pacific Partnership (TPP) is a proposed regional free trade agreement covering 12 countries in the Asia-Pacific region. Negotiations are covering a broad and ambitious range of issues that will significantly increase market access among the diverse range of participating economies. Research by the Peterson Institute4 finds that the TPP could boost world income by $295 billion a year over the next decade.

Each of these initiatives has the potential to act as a significant catalyst to growth in global trade in the years ahead, while also providing renewed impetus to ongoing trade liberalisation efforts.

Corridors to watch – Advanced economies are expected to be the main drivers of growth in global trade this year, as they benefit from robust US growth (with a stronger US dollar leading to increasing US demand for imports). As 2015 proceeds, we expect world trade to receive a meaningful boost from a strengthening recovery in the Eurozone – with the single currency bloc accounting for about a quarter of international trade, its chronic weakness over recent years has been a serious drag on world trade growth. And Japan’s exports appear to be finally getting some support from the weaker yen, although any benefit may be coming largely at the expense of Japan’s trading partners, as import volumes have continued to contract.

The near-term growth outlook for the emerging market economies meanwhile remains patchy. In particular, China’s economic slowdown and maturation of its domestic production capabilities is making it a tough export market for many of its key Asian trading partners, while the downward pressure on commodity prices is proving a difficult environment for large commodity exporters.

Nevertheless, the medium-term outlook for emerging markets appears brighter, as many of economies benefit from favourable demographic trends as well as the ongoing convergence of average incomes towards levels in the advanced economies. This implies that export growth for emerging markets, led by the Asia region, will accelerate over the next few years and outpace growth from the advanced economies.

Over the medium term, the pattern of global trade will therefore be increasingly influenced by the rapidly growing Asian economies. So-called ’south-south' trade (trade between emerging markets) will become increasingly important in the global context, as these countries focus their efforts towards other developing economies with strong potential for rapid expansion of a middle-class consumer market.

Growth in merchandise exports, 2015-30

Amongst the 25 economies covered by the HSBC Global Trade Forecast, growth in trade is forecast to be strongest in India and Vietnam over the medium term; the value of merchandise exports from these economies is forecast to expand at an average rate of around 12% a year in 2015-30. Other countries in emerging Asia are expected to post somewhat slower export growth, albeit still strong compared with most other regions in the world.

At a sector level, we expect machinery and transport to be the main driver of merchandise trade growth in trade over the medium term. Demand for these capital goods is likely to be particularly strong in emerging markets as business investment recovers.

Sector contribution to increase in trade


Since the Information Technology Agreement (ITA) was signed in December 1996 under the auspices of the World Trade Organisation (WTO), it has proved to be one of the most significant international trade liberalisation accords ever. The agreement has facilitated the rapid expansion of global trade in ICT products and acted as a catalyst for innovation and development in the sector. The economic benefits of improved access to ICT products also stretch far beyond the ICT sector itself, as increased use of technology supports productivity, competitiveness and innovation throughout the economy. Against this background, current negotiations to expand the scope of the original ITA agreement offer the prospect of providing a further significant boost to global trade and world economic output.

The ITA has acted as a catalyst to the rapid growth of trade in ICT products…

The ITA focuses on the elimination of tariffs for a specified list of around 250 ITC products. It came into force in 1997 with 43 signatory countries, but membership has since increased to 78 countries. Since the agreement was signed, world exports of ITC products have tripled in value, reaching an estimated US$1.4 trillion (equal to almost 10% of world exports, a higher share than agriculture or automotive products). With ITA signatories accounting for 96% of world trade in these products, this suggests that the agreement played a significant role in unlocking this growth potential.

Research from the WTO supports this conclusion, showing that the elimination of import tariffs on ICT products covered by the agreement supported increased imports in the signatory countries, particularly of intermediate goods5. In addition, their research also identified a strong positive impact from the elimination of tariffs over and above tariff reduction, due to the removal of associated administrative burdens. The clear lesson for trade policy is that there can still be significant economic benefits from reducing tariffs to zero even on products where tariffs are already at low levels.

… which has benefited emerging markets in particular

Signatories of the accord increased their participation in global value chains, as multinational firms were more likely to locate production in ITA signatory countries where they could benefit from cheaper imported intermediate inputs and cheap but skilled labour. The growth has been led mostly by developing countries’ exports. Between 1996 and 2010, the share of developing economies exports in world ICT exports more than doubled, from 31% to 64%. Asia’s share increased sharply in the period, rising from 44% to 66%.

Among the developing economies that have benefited from strong growth in exports of ICT products, China stands out. Among the 25 economies in our sample, China has seen its share of ICT product exports increase very rapidly from 7% in 2000 to 35% in 2014, overtaking the EU as top exporter to become the world’s largest exporter of these products. Our projections suggest that China will consolidate this lead in the coming years, pushing its share of ITC trade to 44% by 2030.

Exports of electronics (% share among the 25 economies in the HSBC Trade Forecast)


















































































Admittedly, a large part of the measured increase in exports of ICT products from the developing economies reflects processing trade, i.e. the activity of importing components and re-exporting the finished products after processing or assembly. The commercial value of the products assembled in emerging markets such as China is therefore derived mainly from the components imported from other countries. Nevertheless, there is strong evidence to suggest that the presence of multinational firms in these countries also results in knowledge spill over effects to the local economy. Indeed, a number of emerging markets – including China – are now maturing in their domestic production capabilities and moving up the value chain to produce some of the intermediate ICT products that were previously imported. As noted by the WTO6,

“To the extent that patent applications by residents can serve as an indicator for innovative activity in that economy, they indicate that innovation in ITA-related fields has increased disproportionately among most of the top-trading ITA participants since 1997. This coincides with the implementation of the ITA.”

ICT products also bring benefits for the broader economy…

In addition to the benefits associated with increased trade and investment in the ICT sector, the diffusion of ICT products in the economy has also been shown to have positive spill over effects for other industries, helping to drive innovation, boost productivity and enhance competitiveness. This holds true for both developed economies and emerging markets, reflecting a bigger return to productivity growth from investment in ICT compared to other forms of capital7. To the extent that the ITA has promoted the diffusion of technologies amongst businesses and consumers, its benefits have therefore extended far beyond the ICT sector itself. Indeed, one study found that for every 1% drop in the price of ICT products, demand for these products increases by 1.5%8. India provides one example of the broad potential benefits of ITA participation, as improved access to ITC equipment has proved instrumental in enabling the economy to become a global leader in consulting services, software development and other services.

ITA signatories also tend to score highly in terms of the development of the ability of their economies to exploit the opportunities offered by ICT. On such measure is the World Economic Forum’s (WEF) annual ‘Networked Readiness Index’ (NRI), which provides a summary indicator of a country’s infrastructure, the market and regulatory environment, as well as the use of ICT amongst key stakeholders (individuals, businesses, and governments). While developed countries generally rank highly, a number of emerging market economies also score well. This includes the UAE, which is ranked in 23rd place ahead of France, as well as Malaysia (32nd) and Saudi Arabia (35th).

The ‘Networked Readiness Index’

… underscoring the significance of potentially extending the ITA’s coverage

The broad economic benefits of free trade in ITC products underscore the importance of negotiations to expand the product coverage of the original ITA and better adapt it to the current technological environment. This reflects the fact that many new ICT products are not covered by the agreement and the rigid categorisation of products causes problems for multifunctional goods. The updated ‘ITA-II’ agreement would also seek to remove non-tariff barriers on ITC products, which constitute the most important barriers to trade where tariffs have already been eliminated. Our forecasts suggest that electronics will be amongst the fastest-growing sectors of trade globally, but a successful and wide-ranging ITA-II agreement would provide a further lift to trade in these products, bringing with it the prospect of additional wide-ranging gains in economic efficiency and innovation-led growth.

Global trade by sector (2014-30)

[1] R.Barrell, I.Liadze & O.Pomerantz (2007) ‘Import Growth, Globalisation and the Impact of Trade Liberalisation’, NIESR

[2] OECD (2014), “The WTO Trade Facilitation Agreement – Potential Impact on Trade Costs”, Trade and Agriculture Directorate

[3] CEPR (2013), ‘Reducing Transatlantic Barriers to Trade and Investment – An Economic Assessment’, Final Project Report, March

[4] Petri, Plummer and Zhai (2012) ‘The Trans-Pacific Partnership and Asia-Pacific Integration: A Quantitative Assessment’, Peterson Institute Press: Policy Analyses in International Economics

[5] Henn and Mkrtchyan (2015), ‘The Layers of the IT Agreement’s Trade Impact’, WTO Working Paper ERSD-2015-01

[6] WTO (2012), ’15 Years of the Information Technology Agreement’

[7] Ezell and Atkinson (2010), ‘The Good, the Bad and the Ugly (and the Self-destructive) of Innovation Policy’, The Information Technology and Innovation Foundation

[8] Dedrick, Gurbaxani and Kraemer, “Information technology and economic performance: A critical review of the empirical evidence”, ACM Computing Surveys, March 2003

About the HSBC Trade Forecast – Modelled by Oxford Economics

Oxford Economics has tailored a unique service for HSBC which forecasts bilateral trade in goods, based on HSBC’s own analysis and forecasts of the world economy. A top-down approach is employed, with Oxford Economics’ suite of models used to ensure consistency between HSBC’s forecasts for economic growth and exchange rates in key countries and the more granular projections for bilateral trade flows presented here.

Oxford Economics employs a global modelling framework, with headline bilateral trade forecasts constructed as a function of final demand in the destination market and the exporter’s competitiveness (as measured by relative unit labour costs). Exports, imports and trade balances are identified, with both historical estimates and forecasts for the periods 2015-20 and 2021-30.

These headline bilateral trade forecasts are also disaggregated by sector, using Oxford Economics’ Industry forecasts to inform future production trends. Sectors are classified according to the UN’s Standard International Trade Classifications (SITC) system at the two-digit level and grouped into 30 sector headings.

Oxford Economics produces a global report for HSBC, as well as country specific reports on the following 23 countries: Hong Kong, China, Australia, Indonesia, Malaysia, India, Singapore, Vietnam, Bangladesh, Canada, USA, Brazil, Mexico, Argentina, UK, France, Turkey, Germany, Poland, Ireland, UAE, Saudi Arabia, and Egypt. The analysis also includes trade with Japan and Korea for a total sample of 25 key trading nations.

All trade flows data are reported in nominal US-dollar value terms (using market exchange rates) unless otherwise specified. This means that fluctuations in a country’s terms-of-trade due to relative price and exchange rate effects are reflected in the data.

Sector Focus – Methodology 
This report also includes a special section on the electronics industry. Based on the same underlying forecasts used for the existing analysis of trends in bilateral trade flows, the report examines how exports/imports of these products are expected to evolve over time. The definition used in the report for the electronics sector is below:

  • SITC 75 – Office machines and automatic data-processing machines 
  • SITC 76 – Telecommunications equipment 
  • SITC 77 – Electrical machinery 
  • SITC 87 – Professional, scientific and controlling instruments 
  • SITC 88 – Photographic apparatus, equipment and supplies and optical goods

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