UNCTAD sees spurt in India’s trade reliance on China, EU

India’s trade reliance on China and the European Union (EU) rose last year, while its dependence on Saudi Arabia declined, the United Nations Conference on Trade and Development (UNCTAD) said in a report.

UNCTAD data showed India’s reliance on the European bloc and China both rose 1.2% annually, while its dependence on Saudi Arabia declined 0.6%.

The increase in New Delhi’s reliance on Beijing came even as India moved to curtail trade with its northern neighbor through its production-linked incentives policy and other measures.

The reliance of one economy on another is measured by comparing their trade with each other to the total trade of the dependent economy. Change is computed by averaging this comparison over four quarters and comparing it to the same period last year.

Political proximity of trade

In its global trade update released last week, the UN’s trade body also said that it has noted an increase in the “political proximity of trade” since the latter part of 2022.

In the case of the US, Washington slashed its trade dependence on China by 1.2%, while shoring up trade with Mexico, UNCTAD data showed as “geoeconomic issues continued to play a significant role in shaping key bilateral trade trends.”

The US also stepped up its reliance on the European Union for trade, the report said.

Amid its ongoing war with Ukraine, Russia saw its dependence on China increasing by 7.1% annually, even as it shed its trade reliance on the European Union.

“Bilateral trade patterns have been favoring trade between countries with similar geopolitical stances (a pattern generally referred to as friend-shoring). Concurrently, there has been an increasing concentration of global trade to favor major trade relationships, although this trend has softened in the last quarter of 2023,” UNCTAD said in the report.

Global trade trends

Meanwhile, these trends come against the background of a global decline in the value of merchandise trade and an increase in trade in services.

The decline in the value of global trade was primarily driven by reduced demand in developed nations and trade weaknesses within East Asia and Latin America, in addition to lower commodity prices, UNCTAD said.

In contrast, trade in services grew for most of 2023, particularly tourism and travel-related services that grew 40%.

The UN trade body said there was a turnaround in the fourth quarter of the year as both merchandise and services “trade stabilized quarter-over-quarter, signaling the end to the decline in global trade of goods, and the end of the strong upward trend in trade in services.”

Looking forward

Looking ahead, UNCTAD said moderating global inflation and improving economic growth forecasts suggest a reversal of the downward trends.

“Rising demand for environmental goods should boost trade in 2024. However, it’s important to note that the global trade outlook for 2024 remains subject to significant uncertainties. Persistent geopolitical tensions, rising shipping costs and high levels of debt weighing on economic activity in many countries may still exert negative influences on global trade,” the report said.

UNCTAD said the prioritization of domestic concerns and the urgency of meeting climate commitments are driving changes in both industrial and trade policies. The utilization of trade restrictive measures and inward-looking industrial policies are anticipated to negatively impact on the growth of international trade.

Geopolitical tensions are also causing disruptions in shipping routes, particularly in Red Sea and Suez Canal. Moreover, efforts to maintain water levels in reservoirs supplying the Panama Canal are anticipated to continue reducing passages in 2024. These events are driving up shipping costs, extending voyage durations, and disrupting supply chains, it added.