Tax & Accounting Blog

Origin of Goods: Who Buys From Whom?

Blog, Global Trade, ONESOURCE November 3, 2017

Globalization has caused many nations’ economies to depend heavily on globalization. Although there are different points of view, we saw the effects of this dependency on raw materials reflected during the 2010 to 2014 Euro crisis, and the slowing of the Chinese economy during 2011-2016.

Understandably, countries that are open to international trade not only see certain economic effects, but also see political and even socio-cultural changes. Point in case Europe is a clear example of a region that has opened free trade treaties and borders, thereby creating a level of integration between different ethnicities and cultures never seen before, prompting diversity in heritage, cultures, customs and languages.

In this article we will review research that looks at country relationships and the effects of globalization. In addition, we will review studies like The Observatory of Economic Complexity, created and maintained by the MIT Media Lab of the University of Massachusetts, that reflects who buys from whom in this big global market.

Let’s begin by reviewing the three major suppliers worldwide: United States, Germany and China. These 3 nations are the top suppliers for more than 80% of the countries in the world. Other countries with some influence in their respective regions are Russia, South Africa and Brazil.

A deep continent-by-continent analysis provides us with some interesting facts.

Americas – United States

The Americas continent is dominated by United States exports, with the main supplier of raw materials and components to the United States being China and then Mexico. Following the United States, Brazil shows some commercial influence as the main supplier in its neighboring countries, such as Argentina, Uruguay and Paraguay, greatly influence by the commercial benefits that the Mercosur Free Trade Agreement provides its member countries.

Unexpectedly, and despite today’s complex diplomatic relations, Venezuela’s main supplier with more than 11 billion dollars in trade with the United States, which is also its main customer, generating more than 8 billion dollars in exports 2017 YTD.

Europe – Germany

Much like the United States, Germany is a dominant player in Europe, especially among other European Union Countries.

Some European countries where Germany is not the top supplier are the former Soviet bloc countries that despite actual political instability, still maintain close commercial relations with Russia, due to their high energy dependence on Russian mineral fuels and oil.

It is worth noting that the United Kingdom, despite being the fourth largest exporter in the world behind the United States, Germany and China. The United States received the most British exported goods last year, followed by Germany and France. The top trade partner for imports was Germany, followed by the United States and China.

Asia and Oceania – China

In the case of Asia, the predominance of China is evident, largely due to their commercial relationship with Japan. Although historically diplomatic relations have been tense with two countries that so distrust each other, they sure do a lot of business together. As of October 2016, there were 32,313 Japanese firms operating in China, with China being Japan’s second export destination and largest source of imports.

In the case of North Korea, with its present unstable political climate, it does not follow the current logic of foreign trade since more than 85% of its international trade happens exclusively with just one country. China is North Korea’s sole trading partner and main source of food and energy and main ally, though of recent China is being pressured by the United States to cool relations due to the North Korean nuclear crisis.

Africa

Unlike the rest of the continents, in Africa there is no hegemonic player that dominates most of the countries of the region.

South Africa is the main supplier for their neighboring countries, although overall China is the continents main supplier, Although France, Portugal and Spain still maintains some commercial influence with their former colonies, such as Algeria, Angola and Morocco.

In summary, trading relations are dependent on different conditions, including agreements and of course need.

In the last decade, we have seen that countries are unable to improve the standard of living of their inhabitants without opening their doors to the rest of the world. Countries that wish to experience sustained growth recognize the need to open their borders up to trade and investment with the rest of the world. In fact, opening up to international trade, coupled with opening up to foreign direct investment has been one of the success factors in ensuring countries can meet the demands of their citizens through imports and jobs, while providing value in the form of exporting their country products and services.

Different studies show that countries with open trade policies tend to grow faster than those who are opposed. Even some authors believe that the benefits of trade liberalization can outweigh costs by up to 10 times (Steven Matusz and David Tarr, “Adjusting to Trade Policy Reform”, World Bank).