May – Trade Outlook

Just how globalised is France?

The French election campaign has raised some important questions: first, what is France’s role in the world, and second how can that role be articulated to its citizens? It is easy to campaign on the back of a view “for” or “against” globalisation. But the reality may well be more complex: to many, globalisation is a threat and it is therefore the next President’s responsibility, to explain why France would do itself great damage by extracting itself from the global, free-trade economy.

France is the fifth largest trading nation in the world with its exports contributing over US$ 600bn in 2016 to the country’s GDP. France is also the fourth most open economy in the G20 measured as the proportion of GDP accounted for by trade at 48% compared to 43% in the UK, for example. While this is not as open as Germany, at 63%, it still shows that trade matters to the French economy and French jobs. More than this, out of France’s 12 largest trade partners, 7 are in Europe (Figure 1), although trade outside of the EU, particularly with the US, China and the UAE is growing more quickly than trade with its European partners.  France’s exports to Germany were worth US$ 80.5bn in 2016 and exports to the US worth US$ 50bn but the growth with the US suggests the gap is not necessarily permanent.

Figure 1:          Projected growth in trade between France and its top partners ordered by size left to right, 2016-2020 (CAGR, %)
Source:           Equant Analytics, 2017

France’s trade with Germany and the US is dominated by aircraft and aerospace. This is France’s largest, and fastest growing, trade sector (Figure 2).

Figure 2:  Projected growth in France’s top trade sectors ordered by size left to right, 2016-2020 (CAGR, %)
Source:  Equant Analytics, 2017

France has strong automotive supply chain relationships with Poland and this is reflected in the fact that imports from Poland are set to grow at an annualised rate of over 3% in the next few years. This also helps to explain why France’s exports of cars and electronic equipment are projected to be either flat or to fall. While beverages and perfumes remain strong growth sectors, their exports are a lot lower in value terms to the French economy, at US$ 18bn for cars and electronic equipment and US$ 16bn for beverages and perfumes compared with US$ 86.4bn contributed by aircraft.

It is in the aircraft and aerospace sector where the real global nature of the French economy can be seen. Given how large this sector is, it is significant that the top trade flows in it are exports to Germany (US$ 20.3bn), imports from Germany (US$ 16.2bn) imports from the US (US$ 13.2bn) and exports to China (US$ 8.3bn). This illustrates just how global this sector is (Figure 3) and, more importantly perhaps, how strong French exports are since all bar four of its top 20 trade flows are exports.

Figure 3: Value of France’s top aircraft and aerospace trade flows by partner, 2016 (US$ bn)
Source:  Equant Analytics, 2017

Trade matters for France and for French jobs given how open the French economy is. French car and consumer electronics manufacturers have taken advantage of cheaper labour in Poland in particular and have built European supply chains, particularly with Poland, to guarantee the competitiveness of their sectors. Aerospace is a more global sector with flows across Germany, the US and China dominating the top five trade flows in this sector. France dominates sectors where globalisation is irreversible. The French election campaign has been fought on the basis of the negative aspects of globalisation through immigration and its weaker power within Europe compared to Germany because of its economic under-performance since the financial crisis. It is the task of the new administration to put globalisation on a positive footing so that the French people feel comfortable with their global as well as their national role in the world.