EM exports and US protectionism – the trade-off
The revised Trans-Pacific Partnership (TPP) agreement was finally signed in March - over a year after President Trump removed the United States as a signatory. We take a quick look at how much emerging markets depend on the US as a trading partner.
Eleven countries have signed the CPTPP agreement: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The agreement is an example of the type of cross-regional integration that should help reduce the risk of geopolitical uncertainty and conflict.
It would not only be a shame but also an initial economic blow for individual emerging market (EM) countries if the US became more introverted from its already low export/GDP ratio of 8% compared to, for example, Germany’s 40%.
But, the reality is that the world has changed in the past few decades, with EM countries as a group now sending almost 60% of their total exports to fellow EM countries (see the chart below).
Indeed, while the US still consumes a sizeable 16% of EM exports, that is a far cry from the post-1995 peak of 25%. Much of that has been taken up by China, which now consumes around 12% of EM exports and will likely continue to increase its share as it grows at a faster rate than most countries.
Even though EM countries overall are increasingly diversifying themselves away from depending on single trading partners, they will be disappointed to see a more introverted US trade policy. In my next post on the subject, I will be examining the individual countries, such as Mexico, which would have the most to lose.