Changes in the Global Trade Environment
Significant changes in international trade took place in recent decades as the economy became increasingly globalized. Although it is difficult to clearly separate the specific phases of globalization, three of them can be brought forward:
- Immobile factors of production. For reasons mainly linked with customs restrictions and transport costs, commodities (minerals, oil, grain) tended to be the most traded. International trade mainly took place to cope with scarcity, implying that countries were trading products they did not readily have available. Any other product which could in theory be produced nationally was subject to a variety of protectionist policies. International transport was dominantly serviced by bulk point-to-point services since the most suitable to this type of trade.
- Mobility of factors of production. Through the 1970s new circumstances came into play to favor a higher mobility of the factors of production, particularly through foreign direct investments and the diffusion of containerization. Much of the international trade framework was liberalized with lower duties and simpler custom procedures. The outcome was a significant increase in the level of economic efficiency as lower labor (input) costs and economies of scale were achieved. In several sectors a concentration of production took place. Cheaper and more efficient containerized transportation supported such a process to locations that previously were mainly outside global economic trends, namely China. This process has for long been advocated by economic theory (e.g. Adam Smith and Ricardo) but never took place at a notable scale. Still, some integration existed before the 1970s, such as in North America (USA – Canada) and Western Europe (early stages of the EU).
- Global production networks. From the 1990s, the application of supply chain management permitted the emergence of integrated commodity chains servicing global markets. By setting or capturing a commodity chain, a corporation is able to generate added value and compete more effectively. Containerization has become imbedded in freight distribution, from the global commodity market to distribution centers close to the final consumer.