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 Pacific Asia (also known as the triad). A trade dichotomy was observed between developed and developing economies as raw materials were flowing north and finished goods were flowing south. This situation can mainly be explained by differences in levels of development, better economies of scale in developed economies as well as by unequal trade relations set during the colonial era.

From the 1970s, this situation changed as industrial development took place in many developing economies in Latin America (Mexico), Southeast Asia (Malaysia, Thailand, Indonesia) and East Asia (China, South Korea, Taiwan). Many manufacturing activities that emerged in developed economies, some becoming large corporations, were relocated lower input cost locations, namely because of cheaper labor. 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.