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JETRO Global Trade and Investment Report 2019 -The fluctuating international economic order and global business in the future –

Jul 30, 2019

  1. World trade in 2018 was at a record high, however, its growth is slowing down

    The slowdown continues in the first quarter of 2019

  2. Global trade flows changing with the tariff fight between the US and China

    Negative growth in trade between the US and China

  3. Startups emerging as new business partners

    New momentum toward establishing startup ecosystems around the world

1.World trade in 2018 was at a record high, however, its growth is slowing down
-The slowdown continues in the first quarter of 2019

  • In 2018, world trade (trade in goods, nominal export value) increased by 9.7% to a record high of $19.0243 trillion (JETRO estimate). However, growth slowed compared to the previous year in the backdrop of the deceleration of the global economy. The total export value in the first quarter of 2019 showed a decrease of 2.6% compared to the same period last year. Growth was negative for major items such as general machinery (down 2.3% YoY), electrical equipment (down 3.4% YoY), transportation equipment (down 4.3% YoY) and chemicals (down 0.9% YoY). The decline was especially noticeable in machine tools, semiconductor manufacturing equipment and cellular phones.
  • Global inward FDI in 2018 decreased by 13.4% from the previous year to $1.2972 trillion (on a balance of payment basis, net, flow). Behind this is the large-scale tax system revision in the United States which resulted in US companies going forward with the domestic repatriation of profits held overseas, for example from European affiliates.
  • The total number of free trade agreements (FTAs) in force in the world (including customs unions and preferential trade agreements) as of the end of June 2019 was 314, up from 307 in the same period of last year (research by JETRO). The coverage ratio of Japan's enacted FTAs has increased significantly from 23.4% in the previous year to 36.7% with the entry into force of TPP-11 and the Japan-EU EPA.

Global trade flows changing with the tariff fight between the US and China
-Negative growth in trade between the US and China

  • According to WTO, G20 economies introduced 71 trade-restrictive measures in 2018, representing an increase for two consecutive years. In addition, the trade coverage of these measures from October 2018 to May 2019 was $335.9 billion, the second largest volume following the previous aggregation period ($480.9 billion).
  • The Trump administration has been actively using all tools available such as trade remedy measures and unitateral trade measures. The average effectively applied tariff rate of the US rose from around 1.4% in the 2000s to 1.9% in 2018, mainly due to the expansion of additional tariffs against Chinese goods. This is about the same rate as 1998 (2%) shortly after the WTO was established.
  • The growth of US imports from China in 2018 slowed down after the imposition of the third round of additional tariffs against China, and since January 2019 it has continued to decline significantly compared to the same period of the previous year. At the same time, China's imports from the US have slowed in growth after the imposition of its first round of additional tariffs, and since October 2018 they have begun declining year-on-year.
  • When comparing China's share of the import subject to additional tariff measures in the US before and after imposition of the additional tariffs, China's share declined in many items such as computer parts and digital processing units after imposition. At the same time, the US share of the import subject to additional tariff measures in China shrank in items such as soybeans and cotton by more than 30% after imposition.
  • Amidst the negative impact of trade tensions, there spreads a sense of crisis that the rulemaking, monitoring and dispute settlement mechanism of the WTO in its current state are insufficient. In particular, recovery of the dispute settlement function is not expected in the short-term due to the issue regarding appointing Appellate Body members. With the improvement in terms of fairness and reliability of the judicial function by Appellate Body, which has been in place since the inception of the WTO framework, it should be resolved as soon as possible.

3. Startups emerging as new business partners
-New momentum toward establishing startup ecosystems around the world

  • Global venture capital (VC) investment reached 254.3 billion dollars in 2018. When comparing VC investment as a percentage of GDP, that for the US (0.4%), and Israel (0.378%) is more than 10 times higher than other major developed countries like Japan (0.036%). While the ratio for major developed countries overall has been climbing, it has only seen minute growth in Japan.
  • Looking at the characteristics of ecosystems in the world’s leading cities from the four perspectives of 1) entrepreneur, 2) funding, 3) opportunity and 4) business environment, the strengths of each ecosystem become clear. In Japan, with the spread of open innovation by large companies, corporate venture capital (CVC) and accelerators are increasing.
  • Some Japanese companies have expanded into new markets and business fields through collaboration with emerging foreign companies such as startups. Issues in collaboration have been raised, such as costs of collaboration, risks of information leakage, and differences in business practices. The key to overcome these issues lies in how determined the company can be as a whole, executives included, in engaging in the collaborations.

International Economy Division, Overseas Research Department
PIC: Mr. Yoneyama (Director, International Economy Division), Mr. Furukawa, Mr. Asakura and Ms. Yamazaki
Tel: 03-3582-5177