The Trade Risk Index



The Trade Risk Index (TRI) is an instrument that can be used to map the trading risk of countries. It represents all trading costs and trading risks. Even those that can not be measured directly, such as risks due to lack of legal certainty or costs due to communication problems.

The Trade Risk Index is a very powerful economic instrument which can be used in several ways. The following current analyzes are an abstract of our work for the automotive sector and the beverage sector.

 

Current Trading Partner Analysis

 

The Development of Trade Risk between Germany and the USA in the manufacturing sector

Trade Risk Index between USA and Germany for the manufacturing sector
Trade Risk Index between USA and Germany for the manufacturing sector (2010 Q1 =100%) (21.03.2019)

Trade risk and costs are falling evenly in the manufacturing sector since the 2010. Since  the beginning of Donald Trump's presidency in the US in 2017 the volatility of the index has increased. This is a clear sign that the current trade policy affects the economy and the trading behavior. Despite the heightened volatility, the trend of the index remains stable. It is expected that trade risks and costs will continue to decline. (The calculation is based on data from Destatis, EZB, BEA and U. S. Census Bureau.)

 

The Impact of the VW Emissions Scandal and the Trade Policy on the Trade Risk in the Automotive Sector

Trade Risk Index between USA and Germany for the automotive sector
Trade Risk Index between USA and Germany for the automotive sector (2010 Q1 =100%) (21.03.2019)

In contrast to the manufacturing sector, the Trade Risk Index of the automotive sector is rising significantly since the VW emissions scandal was revealed in the third quarter 2015. Since this third quarter 2015, when trade risk was lowest, the trade risk mounted by nearly 30%. The sharp increase of the trade risk in 2018 is also due to the EU-US trade dispute and the announcement of car tariffs.  Compared to the Trade Risk Index of the manufacturing sector in the figure above it is obvious that the increase in trade risks and costs is an important issue of the automotive sector, while trade risks for the entire manufacturing sector are decreasing.  (The calculation is based on data from Destatis, EZB, BEA and U. S. Census Bureau.)

 

 

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Current International Market & Country Analysis

 

Risks and Chances for the German Trade with the OECD Members States in the Beverage Sector

  • Green Corner:
    Low Trade Risk, High Chance
  • Red Corner:
    High Trade Risk, Low Chance
  • Green Arrow
    above-average positive trend
  • Red Arrow
    above-average negative trend

(The calculation is based on data from Destatis and OECD.)

 

 

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How does the Trade Risk Index work?

The Trade Risk Index is calculated using an algorithm derived from physics that has been modified and extended to calculate trading costs. In simple terms, the algorithm compares the theoretically possible trade with the actual trade. Furthermore, statements on trading costs and trading risk of a country can be made. This algorithm calculates a score for each country combination. The higher the score, the more expensive and riskier is the trade between these countries.

What are the limitations of the Trade Risk Index?

The Trade Risk Index (TRI) illustrates the costs and risks of trade between countries. For sales opportunities, prices, etc., it provides no information. In addition, the TRI is based on economic data, which is a cross-section of all individuals, companies and organizations participating in international trade.