EU Exports: Emerging Economy Opportunities

EU Exports: Emerging Economy Opportunities

• Emerging economies like China are creating significant opportunities for European businesses.
• Traditionally, Europe was a source of raw materials and cheap imports for manufacturing goods from these emerging economies.
• Large countries within these economies (Russia, India, Brazil) offer major markets for European exports.
• The four Asian Tigers (Korea, Taiwan, Hong Kong, and Singapore) demand sophisticated industrial goods and consumer brands.
• Neighboring countries (Turkey, Ukraine, Algeria, Morocco) offer opportunities for trade with reduced logistical problems due to proximity.
• Trade patterns vary significantly across different emerging markets (Figure 5.1).

UK Companies and Emerging Markets

• UK companies are strong in India, Hong Kong, and Singapore due to historical ties and shared languages.
• French and Spanish exports are strong in the western Mediterranean (Algeria, Morocco).
• Italian industries focus mainly on the eastern Mediterranean (Turkey, Egypt).
• Eastern European EU members have strong ties with Russia, Ukraine, and Belarus.
• China has not had a long-standing relationship with Europe. However, recent economic growth provides large trading opportunities.
• EU exports to China grew significantly between 2000 and 2020, from €26 billion to €204 billion.
• German exports to China form a large portion of Germany's total exports to the world.
• A variety of other European countries also have significant trade with China (e.g., Nordic countries, UK).
• Value chains of some goods (cars) may obscure the origin of the final product.

International Trade

• International trade can be broadly categorized as trade in goods and services.
• Trade in goods relates to physical products traded across national borders.
• Trade in services relates to intangible products and services like financial services, licenses, and tourism.
• China is the largest exporter in recent years, surpassing the US and Germany.
• Overall trade in goods has grown annually (average growth of 6.8% since 1985).
• Growth in trade in services has been more rapid (average growth of 7.7%).
• Global GDP has grown at a slower rate (average growth of 3%).
• Trade is more volatile than GDP.

Theories of International Trade

• Mercantilism: Wealth of the world is fixed and is dependent on trade surpluses (Exports are good, Imports are bad).
• Absolute advantage: Each country specializes in goods where its productivity is best (Zero-sum game).
• Comparative advantage: Countries should specialize in goods where they have the greatest relative advantage, even if they aren't the outright best producers (Win-win scenario).
• Factor endowment theory (Heckscher-Ohlin): a country's comparative advantage stems from its abundance of factors of production (e.g., skilled labor, natural resources).

Modern Theories of International Trade

• Product life-cycle: Initially innovation takes place in a country that has relatively sophisticated technology and industries. Over time, the industry moves to more cost-effective countries to produce on a relatively large scale.
• Strategic trade theory: Strategic government intervention can enhance a nation's odds of success in industries with high upfront costs and barriers to entry.
• National trade competitive advantage (Porter's "Diamond" model): A country's competitiveness depends on a combination of factors: (e.g., factor endowments, strong domestic demand, firm strategies, competition).

Trade Barriers: Tariffs & Non-tariffs

• Tariffs: Taxes imposed on imported goods, increasing their price and decreasing demand. They result in deadweight loss for consumers, but governments gain revenue.
• Non-tariff barriers (NTBs): Various policies that hinder trade; e.g., import quotas (restrictions on the quantity of imports), subsidies, local content requirements, anti-dumping duties, and bureaucratic procedures.

National Institutions and Barriers to Trade

• Governments play a significant role in how countries trade with each other by imposing varying levels of taxation and regulations.
• Economic policies such as tariffs, import quotas, and subsidies influence trade balances between nations.
• International agreements or policies can limit domestic government power.

Emerging economies offer opportunities for European businesses. Large countries like Russia, India, and Brazil are major markets for European exports. The four Asian Tigers demand sophisticated industrial goods and consumer brands. Neighboring countries offer trade opportunities with reduced logistical problems.