Friday, July 1, 2011

Trading with authoritarian countries

On a British politics talk show yesterday I saw a member of the public call for an end to British trade with China on the grounds that such trade was aiding an undemocratic and dysfunctional regime.

It got me wondering how great is trade between undemocratic countries and liberal democracies like Ireland or UK. If the democracies did suddenly cease trading with China, what would happen?

Let's look first at Ireland. From January to March 2011, there was €646.4 million worth of imports from China and €602.1 million exports to China. So China made up 5.2% of Ireland's total imports and 2.6% of Ireland's total exports. These numbers of course tell us little about the quality of that trade, whether or not other countries could make up for the products and markets lost by ending trade with China. Yet they do show that China is still a small part of Ireland's trade, dwarfed by trade with other democracies like UK.

So let's expand it a little. Every year The Economist releases a Democracy Index, ranking countries by the health of their democracies. In 2010 Ireland came 12th highest in the world, considered a 'full democracy'. Ireland's official trade numbers look only at the bigger trade partners, and of these the following countries are listed among The Economist's 'authoritarian regimes':

Saudi Arabia
China

And three more belong to 'hybrid regimes':

Russia
Singapore
Turkey

The combined totals of imports from Saudi Arabia and China is just 5.2% of total imports (Saudi imports are very low in value) and 3.1% of exports. Throwing the hybrid regimes into the mix, combined imports make up just 6.8% of all imports, exports make up 4.8% of all exports.

Now there is an 'other countries' section and a 'country unknown' section so Ireland may be trading with other autocratic regimes. Yet the general picture of Irish trade is that it is overwhelmingly with democratic countries, especially fellow EU countries and the US. If Ireland overnight ceased trading with authoritarian countries then the direct impact would be relatively small (even if indirect effects of sourcing materials and less favourable markets elsewhere could be more destructive).

How about the EU as a whole? Here too the value of Chinese trade is still relatively small, 13.8% of imports and exports in 2009. Other 'hybrid regimes' make up even smaller portions of EU trade: 3.1% for Russia and 2.9% for Singapore. The bulk of EU trade is internal or with democracies like US and Japan. That balance is shifting, however, and by 2009 trade with China was greater than trade with the US. So China's importance, while still relatively low, has risen massively. If the EU ended trade with China it would have a significant impact and one that has risen with time. But the vast majority of EU trade would continue.

The final part of this puzzle is in China's trade data. Ireland's mighty trade with China in 2009 (US$3.2 billion) is 0.32% of China's total trade! So if Ireland decided to cut off all trade with China, they might not notice.

UK makes up 0.8%, the United States a more significant 7.7%. The entire continent of Europe, including non-EU countries like Switzerland, Russia and Ukraine, still makes up only 16% of China's external trade.

Putting together a casual and totally informal estimate for developed democracies (North America, Europe, Australia and a scattering of East Asian states like Japan), we get a healthier chunk of China's trade, something resembling 61%. So if all the OECD countries, plus Russia, could arrange a simultaneous boycott of China then it would devestate their economy, but individual countries would make very little difference.

So for the person who advocated that Britain cease trading with China, think again. China will keep going strong without Britain's insignificant little sector of their trade.

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