Global trade is growing fast, but Poland is faster

International trade is experiencing its most vigorous period in the entire history of the world. In more than half of the countries, including Poland, oil and liquid fuels are the largest import item.

In terms of value, oil and its derivatives, as well as cars and automotive components do not dominate in world trade – their share in the exports of goods in 2016 was 13 percent and 9 percent, respectively. However, their importance in commodity exchange is not decreasing as quickly as one would expect, e.g. based on the growing ecological ambitions of the world.

The role of oil-based fuel is still very high due to globalization, which drives the increase in transport on the routes from the “China & Asia Factory” to America and Europe, as well as the transport of commodities and raw materials to the production centers. The growing demand for energy in all its forms, especially on the part of the new economic powers and dozens of countries emerging from poverty, is equally important.

The structure of international trade is changing slower than its size. Between 2000 and 2016, international trade in goods and services increased threefold, from USD7,621bn to USD20,440bn, including trade in commercial services increasing from USD1,435bn to USD4,730bn. In the period 2001-2016, the share of fossil hydrocarbon exports and their products in overall global exports dropped by just over 1 percentage point, while the share of electric and electronic devices increased by only half a percentage point.

It’s no wonder, as according to data cited by Esteban Ortiz-Ospina and Max Roser in “The International Trade”, international trade is currently experiencing its most vigorous period in the entire history of the world. Its intensity is illustrated by an indicator in which the sum of global exports and imports is compared with the total value of production of all the countries in the world. Before 1800, this ratio never exceeded 10 per cent. The trade boom began two centuries ago. In the 19th century world trade increased by more than 3 per cent annually on average. The first wave of globalization associated with the industrial revolution lasted until the First World War. The most important factors in the first wave were trade between the metropolises and their overseas colonies, as well as exchange between European nations.

One-fourth of world production in international trade

Along with the post-war rise of nationalisms, the rate of trade activity was clearly waning, and both during and shortly after the Second World War, international trade was lacking. Today, we are riding the second wave of globalization, which began about half a century ago. Currently, the ratio of the total exports and imports to the volume of world production exceeds 50 per cent. Because exports are roughly equivalent to imports, more than a quarter of all world production is the subject of international trade.

The structure of global foreign trade according to the level of development of countries and regions is very clear. The West is primarily importing cars and electronics. China and India spend the most on fuel, and consequently on energy, whose supply determines production capacity in every field. What draws attention is the fact that international trade in the South-South relation, i.e. between developing countries, tripled in the period from 1980 to 2011.

In terms of “who does what”, cars are ranked second in imports. For over a quarter of the world’s nations, this is the product most frequently imported from abroad, and in the case of 26 countries the dominance of motor vehicles is more than clear.

In 2015, in the European Union there were 573 passenger cars per 1,000 inhabitants, and in Poland, which usually occupies places in the lower parts of the EU rankings of various indicators of welfare, there were 628 cars per 1,000 inhabitants. Malta, Luxembourg and Italy are the only countries in the EU with more cars registered per 1,000 inhabitants than in Poland.

In the group of heavily motorized countries, the United States, Saudi Arabia and Russia stand out. What is important in the case of the United States, is the high technological and manufacturing self-sufficiency, which results in relatively smaller demand for industrial goods from abroad. On the other hand, we see the effects of the extremely high level of income and consumption, a very large middle class and an oversupply of millionaires. Americans have plenty of money to spend and therefore frequently buy high-end European and Japanese cars. Environmental awareness is also a factor, and the domestic muscle cars are not particularly economical. When it comes to Saudi Arabia or Qatar, the most important role is played by the money from oil and gas sales.

Agricultural and food products are the fourth largest item in global trade, following processed goods, machinery and means of transport, and commercial services. According to WTO estimates, in 2014 their share in global exports amounted to 17.5 per cent. The world’s population is constantly increasing, but there is no shortage of food on a global scale yet, despite the fact that there are still several hundred million starving people. Almost everywhere governments and voters place priority on food self-sufficiency and therefore there are few countries where food is the most important import item. There are only 12 such countries, mainly located in Africa and the Caribbean.

The case of the Caribbean is special: these are small islands and islets visited by crowds of tourists. One inglorious exception is Cuba, which has all the necessary conditions to be a food producing nation, and yet finding the next meal is the biggest concern of its people. The biggest item in Cuba’s imports is poultry, the world’s cheapest farmed meat. In Algeria, the import list is headed by wheat, but the barren Sahara desert covers 80 per cent of territory of this relatively non-deprived country in North Africa. Somalia, which is essentially a fallen state, mainly imports vegetables from abroad (21.3 per cent of all imports). In this case, however, the “official” statistics are not particularly reliable. It may well be that the boxes sent to Somalia, and supposedly filled with food, in reality contain more weapons than vegetables.

For the time being, the supply of food does not encounter any major barriers. Most people and politicians believe that food scarcity is a purely historical concept. Very few people have the audacity to predict that the role of agricultural products and food in global trade may soon become significantly more important. One of them is Bartosz Urbaniak, the vice-president of BGŻ BNP Paribas, who expects a global food crisis in the next decade, stemming mainly from the overcrowded region of Asia. In his opinion, in 10 years world food prices could be twice as high as today.

In the list compiled by the Observatory of Economic Complexity, there are other special cases that can be used as a starting point for a discussion on the benefits from exports and differences in their profitability.

We have got used to the idea that the role of the assembly plants for computers and all other IT products is fulfilled by China, not noticing the growing position of other Asian countries. Meanwhile, integrated circuits are the most important imported goods in Malaysia, Singapore, the Philippines and Vietnam.

Israel spends the most on the import of diamonds. They account for 11 per cent in the structure of that country’s imports. After packaging and processing, the precious stones are exported to other countries. The profitability of this business is best represented by the fact that diamond exports account for almost 23 per cent of the total value of Israel’s sales abroad. The comparison of both indicators suggests that after the processing performed in Israel, the value of the same diamonds went up at least twice on average.

Poland is open to trade

Poland’s economy is more open to trade and the international division of labor than the average. In 2015 Polish foreign trade reached USD398bn, with a surplus of exports over imports reaching over USD2.5billion. In 40 years, half of which were years of crisis, there has been more than a 17-fold increase in the Polish foreign trade turnover.

The measure of the degree of participation in the international exchange of goods and services is the so-called trade openness index. This indicator compares the sum of exports and imports of a given country with the size of its GDP. In 2016 this ratio reached 100.7 per cent in Poland, which places it among the world leaders. In 1990, the same index stood at only 45.3 per cent, which placed Poland somewhere in the middle of the global ranking.

It should be noted that the trade openness index is not the ultimate indicator, because a country such as Honduras achieved almost the same value as Poland, while Germany – the third largest exporter in the world – achieved a result over a dozen percentage points lower than Poland. However, combined with other data, these results are a very positive sign for Poland.

Laboratories and workshops are better than factories

Polish exports are still dominated by so-called supply goods and intermediate goods, but the share of final goods is systematically increasing. Unprocessed aggregate data often distort the picture of the actual state and level of manufacturing in a given economy. Poland is often described, with significant exaggeration, as an “assembly plant” in which the workers mainly put together components that came from the West. The actual situation is closely reflected by a measure known as the so-called value added in exports. If the goods manufactured in our country for a foreign recipient mainly consist of components purchased abroad and were only assembled in Poland, the value added in exports is low. The most severe consequence of this are the low earnings on the production and trade operations carried out in the country.

Exporting components manufactured in the country that are a part of the finished product somewhere else in some foreign factory means that when Poles buy this product from a foreign producer, they usually pay a margin higher than the profit obtained from the export of the component. Therefore, Poland’s goal should be to constantly climb to the top of the ladder of the international division of labor.

There are already some successes. According to data presented in November 2017 by EY (“Polish companies yesterday and today”), the share of value-added exports in the total Polish value added increased between 2000 and 2014 from 20 per cent to 34 per cent. At the same time, there was only a small increase in the share of foreign value added in the value of Polish production.

In Polish industry, the share of domestic value added decreases along with the increase in the complexity of products. In car exports it amounts to approx. 50 per cent, and in the case of computers and optical equipment it is below 40 per cent. The highest share of domestic value added in exports is recorded in services, e.g. legal or accounting services (up to 90 per cent). The problem, however, is that Poland’s supply of the most-lucrative services is low, and the foreign demand for them is also relatively low, although it is increasing.

Poland should know and keep in mind that the greatest profits are made at the stage of conceptualization and design, as well as product research and development, followed by the marketing and distribution phases. Therefore intellectual creations have more value than physical labor. If Poland wants to become wealthy as a country, it needs laboratories and universities comparable to Oxford rather than factory chimneys.

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