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The vast expansion in international trade owes much to a revolution in the business of moving freight. The fifth in our series of briefs on globalisation explains how it happened
IF SHOP windows everywhere seem to be filled with imports, there is a reason. International trade has been growing at a startling pace. While the global economy has been expanding at a bit over 3% a year, the volume of trade has been rising at a compound annual rate of about twice that. In 1996 some $5.2 trillion of goods was sent from one country to another, up from $2 trillion a decade earlier. Foreign products, from meat to machinery, play a more important role in almost every economy in the world, and foreign markets now tempt businesses that never much worried about sales beyond their nation's borders.
What lies behind this explosion in international commerce? The general worldwide decline in trade barriers, such as tariffs and import quotas, is surely one explanation. The economic opening of countries that have traditionally been minor players in the world economy, such as China and Mexico, is another. But one force behind the importexport boom has passed all but unnoticed: the rapidly falling cost of getting goods to market.
In the world of trade theory, shipping costs do not matter. Goods, once they have been made, are assumed to move instantly and costlessly from place to place. The real world, however, is full of frictions. Exporting Italian steel to Britain may be good business if freight costs 20 ($34) a tonne and impractical if it costs 1oo a tonne. Cheap labour may make Chinese clothing competitive in America, but if delays in shipment tie up working capital and cause winter coats to arrive in April, trade may lose its advantages. Freight costs, in short, can have a huge impact on both the overall volume of trade and on individual countries' trade patterns.
They are a far less daunting obstacle than they used to be. This reflects two notable economic trends. First, the world economy has become far less transport-intensive than it once was. Second, the transportation industry has changed in remarkable ways, making it far cheaper and easier to ship goods around the world.
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