Changes in Global Trade Flows

Changes in Global Trade Flows

Source: Seaborne trade data adapted from UNCTAD, Review of Maritime Transport.

Prior to the 1970s, global trade flows were dominated by three major poles, North America, Western Europe, and the developing economies of East Asia (Japan, South Korea, and Taiwan). A trade dichotomy was observed between developed and developing economies as raw materials were mainly flowing north and finished goods were flowing south. This situation can mainly be explained by differences in development levels, better economies of scale in developed economies, and unequal trade relations set during the colonial era.

From the 1970s, this situation changed as economic development took place across a range of nations in Latin America (Mexico), Southeast Asia (Malaysia, Thailand, Indonesia), and East Asia (China, South Korea, Taiwan). Many manufacturing activities that emerged in developed economies were relocated to lower input cost locations, namely because of cheaper labor. Emerging multinational corporations were actively involved in this process. Such a structural shift is well illustrated by the variation in the share of developing economies in seaborne trade, which used to be highly imbalanced with much more cargo being loaded than unloaded. Economic development resulted in a growing share of developing economies as a destination for cargo. Consequently, global trade is now characterized by significant flows of cargoes (raw materials, intermediate and finished goods) from developed to developing economies.