World trade in 100 years’ time

The question is if any trade will exist in the beginning of the next century, and if so, if it will remain a global trade. If we answer these questions in the affirmative and believe that trade will retain its international status, one can try to imagine which countries will be the key players in this respect, what its structure will be in terms of the distribution of goods and services, what trading methods will be the most popular. Is it safe to assume that in the world trade structure, the share of services will increase significantly, its growing part will be implemented through intra-company channels and through inter-company cooperation, and the most part of trade will be concentrated in the Asia-Pacific region?

The question is if any trade will exist in the beginning of the next century, and if so, if it will remain a global trade. If we answer these questions in the affirmative and believe that trade will retain its international status, one can try to imagine which countries will be the key players in this respect, what its structure will be in terms of the distribution of goods and services, what trading methods will be the most popular. Is it safe to assume that in the world trade structure, the share of services will increase significantly, its growing part will be implemented through intra-company channels and through inter-company cooperation, and the most part of trade will be concentrated in the Asia-Pacific region?

Globalization. International trade regime

Globalization processes have accelerated in the last quarter of the XX century. However, the last global economic crisis was accompanied by a burst of protectionism to give cause to talks about the end of globalization. In this respect, we can point out two mutually exclusive tendencies. Which one will prevail?

The current phase of globalization, as well as the previous ones, is not smooth, involving various obstacles to overcome. Thus, in the early 1960s, the governments of many industrialized countries abandoned currency restrictions, whereas at the end of the same decade, the increased insecurity of the world monetary and financial system forced them to return to the previous practice and retain it until the end of the 1970s. Moreover, some restrictions occurred until the 1980s. In the 1990s, developing countries and transition economies followed the industrialized countries on the path to financial liberalization. The process of international trade liberalization unfolded with a number of difficulties and temporary setbacks involved. A striking example in this respect is WTO trade negotiations. Again, globalization processes seem to have been suspended, apparently, with a new breakthrough, to follow. What we are witnessing is a growth crisis, during which contradictions accumulated previously are being resolved, and the road for the next globalization phase is opening.

This occurred earlier in the global history. The period between the second half of the XIX century and early XX century was marked by the rapid economic growth, and the liberalization of international exchange significantly contributed to this. According to some findings, at the turn of the XIX and XX centuries, a very high level of goods, capital, and labor movement liberalization, which is superior to the current level, was achieved. However, the beginning of World War I was marked by a long period of protectionism, which continued until the end of World War II. We can’t but hope that this time the globalization crisis will be resolved peacefully.

Photo: goodvin.info

In recent years, the processes, which occur within the World Trade Organization, call into question the ability of this organization to act as one of the pillars that ensure stability of international economic exchange. WTO multilateral negotiations are focused on two major and acute issues: reduction in agricultural subsidies and market access for industrial goods.

Many observers are in favor of rejecting WTO “all or nothing” principle. In their view, the talks should be limited to the topics, on which achieving a compromise seems possible and which this is a prerequisite for moving forward. The initiative is unofficially called Plan B. This “limited” agenda includes such issues as subsidies to agriculture and fishing industry (despite their critical nature some progress has been achieved on these issues), liberalization of markets for environmental goods and services, provision of special and individual regime for developing countries, and facilitation of trade procedures.

Currently, WTO is concerned with the high level of protectionism and lack of progress in negotiations (). Certainly, WTO will overcome existing differences, complete the current round of multilateral trade negotiations, and continue the policy of liberalizing the international trade regime, harmonizing the trade policy, and constructing an open global trading system. Nevertheless, the trend towards the liberalization of international exchange will continue with interruptions or even temporary setbacks.

Science for trade

The timeout observed today in the accelerated growth of globalization, is perhaps caused by the long-standing search for its new technological engine. Among the many areas of a likely technological breakthrough, creation of artificial intelligence and total computerization and robotization of industrial production, transition to new energy, industrialization of agricultural production, development of new materials, preservation and regeneration of natural resources, apparently qualify for a key role in terms of their impact on the international trade.

The next round of market globalization will bring dramatic changes in the global production and consumption, and in the structure of the world trade. Transition to new energy and development of materials with predetermined properties will lead to the ousting of fossil fuel and raw materials from the global sales. In the XX century, the share of energy and raw materials fell from two-thirds to one-quarter of the total world exports. Today, the bulk of international trade flows consists of manufactured products, which account for two-thirds of the world exports. In this century, a further shift is likely to occur: manufactured products will give up the leading position to services that are, for now, account for one-fifth of world trade only. This shift will reflect the general trend of increasing the role of services in the economy and the transition of a growing number of countries to a post-industrial stage of development.

Photo: Robotic assembly plant

Over the past decade, significant potential was accumulated in industrial automation. Some analysts believe that in the near future, the use of robots will become widespread; they anticipate that robots will change the world as radically as the world was changed by production mechanization at some point. In trade, the future impact of robotics is seen as follows. The universal use of robots will reduce the incentives to transfer production from developed countries to the countries where labor is cheap, i.e., to developing countries. Moreover, some U.S. companies are giving more thought today to transferring jobs from developing countries to the United States. Developing countries will lose their competitive advantage in the cost of wages, and this will strengthen the position of developed countries in the world market of industrial products.

Creation of artificial intelligence and penetration of computer technologies in all the areas, where they are not currently used, will lead to radical changes in production technologies and people’s way of living. A growing number of people will work under cross-border employment pattern, without leaving home. This will give a new dimension to the demographic issue and will impact migration flows as well as lead to a search for new approaches to assess the quality of human capital and its impact on the level of international competitiveness. Thus, today, Indian programmers, working for U.S. firms, enhance the competitiveness of these firms in the global market. With an increase in the share of services in GDP and the development of trade in services, such arrangements will be used more often and will become a measurable factor in determining competitiveness in the global market.

At present, e-commerce is widespread. In the future, this form of trading will be applied in growing scales.

With deeper globalization, whose essential feature is the trans-nationalization of production, an increasing share of international trade flows will be implemented between sectors of the global technological networks located in different countries.

The global market players. Per aspera

The issue of who is going to be among the global market players is quite important. The fact is that within a century the onset of events to radically alter the current picture of the world is likely. Indeed, even within a single generation life-time, political regimes that seemed unshakable collapse, economic unions are formed and disintegrated, former outsiders lay claim to the status of global market leaders, science and technology make surprises that upset latest predictions and lay the basis for the emergence of new industries and types of production.

Currently, numerous predictions are made to redraw the political map of the world. Nevertheless, presumably, in a hundred years’ time, the countries “similar” to the United States, China, India, Russia as well as the European Union (by that time, EU will have a single state status or it will cease to exist) will become the main players in the world trade.

Photo: NASA
The concept of a lunar base,
June 1977

As globalization grows and global problems become more complicated, a range of issues that require coordinated solutions will expand. Nevertheless, over this period, a “world government” is not likely to be formed. Although a “corporate citizenship” concept seems to be very interesting as viewed in a century’s time, we will proceed from the task that a state as such will not cease to be a structure-forming element of the international system. This means that the world trade will maintain its international dimension.

However, for such an extended period of time, transformation of international trade into interplanetary trade doesn’t look as a work of unbridled imagination either. In any case, trade flows between the Earth and the Moon may occur, and even become regular. The question is what trades will be backed by this space cargo traffic. Most likely, they will be carried out under an international project with the possible participation of Russia, U.S., EU, China, and India.

The possibility of using lunar resources is not hot news. In the U.S., it has been considered from the beginning of space exploration – since the 1960s. Particularly, significant reserves of helium-3 isotope, which can be used as the primary fuel for nuclear fusion, were discovered on the Moon. On the Earth, this isotope is available in small quantities, with the price of 16 million US dollars per kilogram. Its production on the Moon could be commercially viable.

The main portion of international exchange will be concentrated in the Asia-Pacific region, which today accounts for a little less than half of the world exports. Here, newly industrialized countries (Republic of Korea, Singapore, Malaysia, etc.) as well as such rapidly developing (in the recent decades) giants as China and India, along with the U.S. and Japan, are located.

The rise of China and India in the world market is based on the growing strength of their economies. By the middle of this century, they are expected to become leaders in terms of GDP. In the course of the global economic crisis that began in 2008, China overtook Germany to become the world’s largest exporter.

The rise of China and India in the world market will be constrained by a number of factors ([1]; [2]). The major one is a sharp increase in the role of science in production, which is projected for the middle of this century, according to our estimates. Already in the late Soviet Union Textbooks of the wrote about science transformation into a direct productive force of society. Partially, it has become a reality, while the next phase of globalization will apparently be marked by the science entering a new qualitative level in terms of its role.

Scientific and technological leadership is known to be one of the major competitive advantages in the global market. Today, the United States is the world’s scientific and technological leader. Here most inventions occur, new technologies emerge, being further transferred to other countries, which become dependent on the U.S market as well as on the U.S science and technology. The U.S has the most efficient corporate sector, government regulation, and a national innovation system [1]. As of today, the U.S. has a comparative advantage in almost all major globalization areas [2].

The forecasts suggest that China will overtake the U.S. in terms of GDP by 2020 ([1]; [2]). The Institute of World Economy and International Relations of the Russian Academy of Sciences projects that the United States’ share in the world GDP will decrease from 19.7% to 17.6% in 2010-2020, while China’s share in the same period will increase from 12.9% to 19.1%. In 2030, the U.S. share will be 15.6%, while the similar indicator for China will reach 24.4% [3].

Фото: REUTERS/Aly Song
Factory In China

However, it seems unlikely that the United States and the European Union will give up their leading position in science to developing economies. Well, China, India, and a number of other rapidly growing countries are making considerable efforts towards improving their scientific and technological level. The U.S. and EU are not marking time either, and they are very likely to retain their positions among the top five trading countries. Maintaining their positions will also be facilitated by the increase in the share of services in the world trade, since in this market sector, developed countries are in a stronger position than the fast-growing developing economies.

In 2010, China’s share in the world merchandise exports was 10.4%, while in exports of services – 4.5%; India’s share accounted for 1.4% and 3.2% respectively. The U.S. shares were 8.4% and 14.3%, whereas the relevant indicators for Germany were 8.2% and 6.2%, accordingly; the similar indicators for EU as a whole accounted for 33.8% and 42.4%, accordingly (http://unctadstat.unctad.org/ReportFolders/reportFolders.aspx). The composition of the global market players in the future will not change fundamentally. The balance of power in the global market for goods and services will not undergo drastic changes. The author’s findings, which are based on the above analysis of the world trade trends suggest that in 2110, the U.S. share in the world merchandise exports will account for 4-6% and in the world service exports it will be 14-16% - , while the relevant indicators for Germany will account 4-6% and 6-8%; the indicators for EU member-countries altogether will total 25-30% and 40-45%, accordingly; with China to reach 18-22% and 4-6%, and, finally, India – 6-8% and 3-5%.

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Historically, in the next stage of globalization, the countries to have managed to lead a new mainstream of scientific and technological progress or at least to have taken a leading position in this field will join the pacesetter group. Therefore, with regard to Russia the significance of its scientific and technical parameters in the framework of economic development and improvement of the country’s participation in the international division of labor is increasing. In 2010, Russia accounted for 2.6% of the world exports of goods and 1.2% of the world exports of services. This is an increase as compared with 2000, when the relevant indicators for Russia were 1.6% and 0.6%, respectively (). However, it is fair to say that the exports of services remain low, while the increase in merchandise exports was due to higher energy prices. In 2010, fuel and minerals accounted for 70.4% of Russian exports. Russia is increasingly consolidating its role as an energy supplier, acting in that capacity both in relation to European countries and China.

Unfortunately, as compared to the leading countries, Russia’s scientific and technical basis of the economy and the dismal shape of its manufacturing base leave no hope for Russia in terms of its ability to maintain its current position in the world trade, not to mention its strengthening, if the prevailing trends persist. Moreover, the efforts specifically focused on modernization, for example, the export potential, are not sufficient. The problem appears to be systemic in nature rather technical. In order to reverse the situation, fundamental changes in the existing socio-economic system are required.

The essence of these changes is well known. The issue is discussed at various levels in the country and abroad, it is the subject of analysis when long-term Russian economic strategies are developed ([1]; [2]; [3]). In the globalizing world, the country’s trade positions are directly related to its investment climate. Meanwhile, the international ratings of the quality of business environment put Russia in the bottom half of the list. Overcoming the dominance of bureaucracy and corruption, restoring confidence in the judiciary and state institutions in general are among the most pressing issues.

The country’s decision to join WTO is an important step towards modernizing the Russian economy. This will facilitate access of goods to foreign markets; will improve the investment attractiveness of the economy, will enable the country to protect its interests in negotiations on further liberalization of the world trade. WTO accession ensures that Russia is part of a unified legal framework of international trade, which is a prerequisite for a harmonious incorporation of the country’s economy into the global reproduction process. If further developments are positive, in a hundred years’ time, Russia’s share in the world exports of both goods and services may account for about 3-5%.

In conclusion it is worth emphasizing that over the next hundred years, the world trade growth will be accompanied by a sharp increase in the role of science. In regard to the world exports, the share of services will increase, while the share of energy and raw materials will decrease. The intra-company trade channel shipments will be increasing as part of the cargo traffic; the increasing share of international exchange will be generated through the cooperative ties in science, manufacturing, and marketing. This means increasing the share of goods and services that are shipped between branches and subsidiaries located in different countries, as well as the share of the ones provided under cooperative contracts signed by companies located in different countries.

1. The Issue of Efficiency in the XXI Century: the U.S. Economy / W. Martsinkiewich, Editor-in-Chief, Moscow: Nauka, 2006.

2. Martynov V.A., Dynkin A.A., Bolotin B.M., Machavariani G.I., Shishkov Y.V., et al. General Trends of the World Development // The World at the Turn of the Millennium (a forecast for the world economy to 2015) / Heads of the writing staff. Martynov V.A., Dynkin A.A., Moscow, 2001, page 55.

3. Strategic Global Forecast. Extended version / Dynkin A.A., Editor, Moscow: IMEMO, RAS, 201, page 462.