3 reasons global trade is no longer rising


During the 1990s, global trade grew more than twice as fast as the global economy. Europe united. China became a factory town. Tariffs came down. Transportation costs plummeted. It could be called the Wal-Mart Era, in honour of the US-based, ubiquitous discount stores and hypermarkets.

But now Europe is fraying around the edges; low tariffs and transportation costs cannot get much lower. And China's role in the global economy is changing - making more of what it consumes and consuming more of what it makes. In addition, China's maturing industrial sector increasingly makes its own parts rather than imports components.

The result: The International Monetary Fund calculated that a 1 per cent increase in global growth increased trade volumes by 2.5 per cent in the 1990s. In recent years, the same growth increased trade by just 0.7 per cent.


Most trade flows among developed nations. The McKinsey Global Institute calculates that 15 countries account for roughly 63 per cent of the global traffic in goods and services, and for an even larger share of financial investment.

China used factories to build a middle class. But automation makes it harder for other nations to follow.

Professor Dani Rodrik, a Harvard economist, calculates that manufacturing employment in India and other developing nations has peaked.

The weakness of the global economy is exacerbating the trend. Infrastructure investment by multinationals declined for the third straight year in 2015, says the United Nations, predicting further decline this year.


Economist Branko Milanovicin in 2012 charted how real incomes rose significantly for most of the world's population between 1988 and 2008, but not for most residents of the United States and other developed countries.

The chart is often used to show the consequences of globalisation.

Reality is more complicated, but voters in developed nations increasingly view themselves as the victims of trade with the developing world - and a backlash is brewing.

Mr Donald Trump's presidential campaign is an obvious manifestation, as is Mrs Hillary Clinton's backing off from support of the Trans-Pacific Partnership trade deal.

Economic stagnation is turning European voters against trade too.

Prof Rodrik says proponents of free trade were guilty of overstating the benefits and understating the costs.


A version of this article appeared in the print edition of The Straits Times on November 01, 2016, with the headline '3 reasons global trade is no longer rising'. Print Edition | Subscribe