Key Findings

I. Tackling Trade Costs and Facilitating Supply Chain Networks

Between 2000 and 2018, average trade costs for APEC economies declined by 8.5 percent, from 129 percent to 118 percent in ad valorem tariff equivalent terms. This could be credited in part to APEC's consistent trade facilitation efforts, including the first and second Trade Facilitation Action Plan (TFAP I and II) and the Supply Chain Connectivity Framework Action Plan (SCFAP).

Trade costs in both APEC economies and at the global level spiked in eventful years such as during the 2008-2009 global financial crisis and, to a lesser degree, the COVID-19 pandemic. Trade costs at the sectoral level also increased in 2020, given supply chain disruptions caused by the COVID-19 pandemic. The APEC region, however, has shown a certain resiliency, with its trade costs increasing at lower rates than the global level during those periods of crisis.

Trade costs for essential goods have fallen substantially over the last decade. Some APEC economies with the lowest trade cost levels in 2018 - Canada; China; Japan; Korea; Singapore; and the US - also have the highest centrality measures, suggesting that their relatively lower trade costs might have catalyzed their central roles in the global trade networks for selected essential goods.

The trade networks of a selected range of essential goods - chemicals, medicines, personal protective equipment (PPE) and medical equipment - expanded significantly from 2000 to 2018, facilitated by the emergence of trade hubs acting as key suppliers to a wider group of economies. The number of bilateral trade ties in these networks dropped slightly in 2020, but, in the case of PPEs, export performance remained strong. A fall in trade costs may lead to increased geographical concentration of production, clustering of business activities and fragmentation of the production process, thus enabling the emergence of several production hubs.

The trade networks for certain essential goods display a high level of centralization. These networks are highly concentrated, which could be efficient, but, at the same time, could also lead to supply chain risk and fragility. Importing a high proportion of those risky products could make an economy vulnerable to spillover effects from supply shocks, particularly from disruptions originating in hub economies.

Managing inflation is crucial in ensuring a robust economic recovery; and disruptions to supply chain networks could have considerable impacts on inflation. Although such inflationary impacts could be temporary and short-lived, they may also be protracted if they raise production costs significantly.

Economies need to take steps to reduce trade costs and improve the resiliency of supply chain networks, particularly for essential products that are important for economic recovery and stability. Avenues that APEC economies could pursue include: (1) investing in trade facilitation reforms and facilities to resolve supply bottlenecks; (2) preventing supply chain disruptions to risky and essential products; and (3) strengthening policy coordination and regional cooperation when adopting economic resiliency policies.

II. Sustainable Recovery amid Uncertainty

APEC GDP growth is expected to slow down to 3.2 percent in 2022 and 3.4 percent in 2023, following a 5.9 percent expansion in 2021.

Economic recovery, which was already fragile to begin with, faltered towards the second half of 2021 with the emergence of the highly contagious Omicron variant. The resurgence of infections led to shortages of workers and production inputs, disrupting global supply chains and contributing to supply-demand imbalances that resulted in higher food and energy prices.

APEC inflation averaged 3.0 percent in 2021, doubling from 1.5 percent in 2020. Inflation for Q1 2022 averaged higher at 4.5 percent compared to 1.8 percent in Q1 2021.

Rising inflation, particularly of food prices, could push more people into extreme poverty. Higher inflation, interest rates and debt could slow down economic activity. Other risks remain, including a protracted war in Ukraine, the moderating of China's economy; climate change, which, if left unmitigated, will continue to affect people's health and livelihoods; and the ongoing pandemic, where the emergence of highly transmissible variants could send economies back into restart mode.

Merchandise and commercial services trade recorded double-digit growth in 2021 from contractionary levels in 2020. However, the World Trade Organization and the International Monetary Fund cut their trade forecasts for 2022 and 2023 account for the multiple challenges that could negatively impact trade relations and activity.

Amid heightened uncertainty and rising risks from crisis upon crisis, APEC has remained committed to stay the course of sustainable and inclusive growth by implementing the Putrajaya Vision through the Aotearoa Plan of Action (APA).

The APA is focused on implementing inclusive policies that equip people with updated skills necessary to thrive amid rapid technological change; advance gender equality and women's economic empowerment; support small businesses' access to finance, global markets and global value chains; and further deepen APEC's work on groups with untapped economic potential, including indigenous groups, people with disabilities and those living in remote and rural communities.

APEC recognizes that growth and prosperity need to be attained through environmentally sustainable approaches. APEC economies are expected to work towards achieving their environmental goals, including through doubling renewable energy in the APEC energy mix by 2030, reducing aggregate energy intensity by 45 percent in 2035 and integrating the bio-circular-green model into the region's economic approaches.

Food security also forms a vital part of APEC's sustainable growth agenda, which is timely amid rising food prices. The APEC Food Security Roadmap Towards 2030 leverages public-private partnership to bring about digital and innovative approaches to increase productivity and efficiency; minimize food loss and waste; mitigate and adapt to climate change; and reduce costs and facilitate food trade.

Alongside the pursuit of medium- to long-term objectives, APEC is mindful that, in the immediate period, the priority is to remain focused on ensuring that the region's people are healthy so that economies can recover, reopen and rebuild. Central to this is the crucial role of trade facilitation to ensure the free and rapid flow of vaccines, therapeutics and related medical supplies across borders.

The resumption of cross-border activity remains paramount, to strengthen the region's connectivity, while at the same time, reenergize travel and tourism to support economic growth.

For APEC, the challenge remains to translate the Putrajaya 2040 vision of an "open, dynamic, resilient and peaceful Asia-Pacific" into concrete actions and tangible benefits for all people.

Data Analysis

This section displays some of the data highlights in the paper.

Trade costs (%): APEC and global

Note: Based on the methodology described in Appendix B. Global average trade costs are represented by 42 economies: Brazil, Bulgaria, China, Croatia, the Czech Republic, Estonia, Hungary, India, Indonesia, Latvia, Lithuania, Korea, Malta, Mexico, Russia, Turkey, Romania, Poland, Slovakia. Also included are the following high-income economies: Australia, Canada, Cyprus, the EU15 economies, Japan, Norway, Slovenia, Switzerland, and the US.
Source: UN Comtrade data; APEC PSU staff calculations.

Evolution of trade networks for medical supplies

Note: (1) Node sizes reflect total export values: bigger nodes represent large exporting economies; node shades reflect (betweenness) centrality: darker nodes represent more central/hub economies; edges (the lines between the nodes) reflect bilateral export values: darker and thicker edges represent higher export values.
Source: CEPII-BACI data; APEC PSU staff calculations.

Inflation rate (%), 2020 and 2021

Source: Member-economy sources; APEC PSU staff calculations.

GDP growth (actual, 2021) and projections (2022-2027) (%)

Source: Member-economy sources; IMF World Economic Outlook (April 2022); APEC PSU staff calculations.

Loading

APEC Regional Trends Analysis

May 2022