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While globalization itself is not reversing, according to the Financial Times, it has “definitely lost its dynamism”. In September, trade was interrupted between Asia and the U.S. after South Korean shipping line, Hanjin, filed for bankruptcy. As a result, the company left several dozen of its cargo ships at sea. While it is not being noticed by most people, trade is no longer rising across the globe. Statisticians in the Netherlands found that the volume of global trade was flat in the first quarter, then fell by 0.8% in the second quarter. The total value of U.S. exports and imports fell by over $200 billion last year. So far this year, the amount of trade has fallen by an additional $470 billion. There are a variety of opinions on why the amount of global trade has fallen, but the International Monetary Fund concluded that is it due to the synchronized economic slowdown in both advanced and emerging markets.
While the global economy is still considered to be in a period of prosperity, growth has slowed partially due to this decline in trade. One will always impact the other – with economic growth being both a result and driver of the slowdown. The slowdown is showing signs of being structural as developed nations appear to be moving away from globalization. World Trade Organization (WTO) round talks last year ended in failure, and the TPP is also struggling to officially be ratified, as it is opposed by both major-party American presidential candidates. In July, the WTO also stated that it had put over 2,100 new restrictions on trade in place since 2008. Additionally, evidence of a rise in non-tariff barriers also exists.
According to the New York Times, there are three main reasons that global trade is no longer rising. The first is that “The Walmart Revolution is Over”. Throughout the 1990’s, trade grew more than twice as fast as the global economy, Europe became more unified, China’s industrial manufacturing power grew, and transportation costs plummeted. This is not the case any longer as Europe is experience extreme turmoil, transportation costs cannot get much lower, and China has focused its manufacturing on what its own citizens need. Secondly, it is believed that India will not be China 2.0. McKinsey Global Institute calculates that 15 countries account for around 63% of global traffic in goods and services. Even if growth rebounds, automation will likely reduce investment incentives for those wishing to invest in areas with low labor cost, and the benefits for these developing areas will decrease. Finally, politics does play a role in global trade. An economist named Branko Milanovic published a chart demonstrating how real incomes rose for the majority of the world’s population between 1988 and 2008, but not for most residents of developing countries. Many people from these developing countries consequently view themselves as victims of global trade, while economic stagnation is turning away European voters from it as well.
Analysts suggest that world trade will recover as long as the world economy and investment improve together. However, some people believe that this trend has been going on for longer than most think. According to Jagdish Bhagwati of Columbia University, “the decline of manufacturing employment has been going on for half a century.” If this is truly the case, as he believes, no trade policy could directly reverse this trend since it is primarily driven by changes in demand and technology. Perhaps the pattern of global trade is cyclical and we will see it rise again soon, but only time will tell.
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