The Remarkable Impact of Trade on the Top 30 Economies

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Here at Walletwyse, we believe that successful personal finance requires a keen understanding of the financial health of your city, state & even country. Most people aren't internationally mobile, but the investment decisions we make should be informed by our understanding of international markets (personally, I keep most of my Roth in index funds linked to developing countries).

With a lot of discussion going on about international trade, we decided to show the relative impact of international trade activity on gross domestic product (GDP). In order to achieve some comparative parity between the U.S. and the E.U., we broke out individual U.S. states that rank within the top 30 global economies on their own. We also included totals for the E.U. and U.S. combined markets.

One thing you'll notice is that in Europe, international trade makes up a much larger percentage of GDP on average than in most other markets. This is because the E.U. countries get the benefit of open markets, but unlike trade between, say, California and Nevada, trade between two E.U. coutnries still counts as international, which shows how important single markets are to most European economies.

Astute observers might wonder why two economies - the Netherlands and Switzerland - appear to have a NEGATIVE GDP when you exclude trade. This doesn't mean these countries don't have robust consumption & government spending (quite the opposite, in fact). It just means they export so much that they are able to import far more than their domestic economy would ever support on its own.

Also of note... if you split the U.S. & E.U. into individual states, then Calfiornia, with a domestic-only GDP of over two trillion dollars, overtakes export-dependent Germany to become the 3rd-largest economy in the world once you remove the portion of GDP attributable to international trade.

All data used in this study uses World Bank methodology.

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