International trade has been in the news lately, with a growing standoff between not just the United States and China, but even the U.S. and Europe. The focus of these headlines is usually on trade in agriculture and physical goods, but trade in financial services matters too, and has its own looming issues.
- Total global exports in financial services was $489.8 billion in 2018, up 5.6% from the prior year.
- The United States and United Kingdom together make up 40% of the world’s financial services exports.
- U.S. exports of financial services was at a record-high $113 billion.
- The United Kingdom’s access to European Union financial markets after Brexit is uncertain.
In this post we look at the World Trade Organization (WTO)’s 2018 report on financial services exports. To find the data on the WTO dashboard, make sure to set “Type of trade” to “Trade in commercial services” and “Commodity/sector” to “financial services.” Each country is drawn to scale on the map based on the size of its financial services exports. A darker shade of green also indicates more financial exports.
Top 10 Biggest Exporters of Financial Services
1. United States: $113.04 B (23.51%)
2. United Kingdom: $83.08 B (17.28%)
3. Luxembourg: $64.29 B (13.37%)
4. Singapore: $27.15 B (5.65%)
5. Germany: $24.40 B (5.07%)
6. Hong Kong, China: $23.73 B (4.93%)
7. Switzerland: $21.79 B (4.53%)
8. Ireland: $17.88 B (3.72%)
9. Japan: $11.47 B (2.39%)
10. France: $9.54 B (1.98%)
Together, the U.S. and the European Union (EU) make up almost exactly half of the world’s financial services exports. It’s an impressive statistic, but one that’s about to be made less so: the European Union figure includes the United Kingdom (UK), which at some point will be leaving the EU. Traditionally a banking and finance powerhouse, the UK makes up over 17% of the planet’s financial services exports. Recently, the UK financial sector has benefitted from easy exposure to European markets as part of the so-called European single market. With Brexit, the exact trading status between the UK and EU remains unclear, but the consensus is that this will negatively impact the UK financial sector. The consulting firm PricewaterhouseCoopers suggests that the UK financial market will lose between 7 and 12 billion British pounds due to Brexit in 2020.
The UK isn’t the only financial market bracing for hits in 2019: the yield curve for US Treasury bonds recently inverted -- a traditional harbinger for recession. On top of that, the amount of negative-yielding debt now equals nearly a third of tradeable bonds worldwide, according to J.P. Morgan. These signs of a global slowdown are likely to accompany a reduced demand in financial services.
On what terms will the UK leave the EU, and how will this affect its access to financial markets? Is the U.S. economy headed for recession? What would that mean for financial exports? Let us know your thoughts in the comments.
Data: Table 1.1