Although it would be challenging for the casual observer to discern from reading the business section of many newspapers or trade publications where the subject is most usually discussed in terms of something that is continually exploding at a rapid pace, the rate of global trade growth has in fact slowed sharply since 2012, to the point now where it is actually underperforming gross domestic product for the first time in four decades.
This does not mean that some kind of dire situation in the world exists at present — international trade is still on the rise by about 3 percent per annum since bouncing back from the global financial crisis — but at least according to some economists, persistently sluggish growth may be the “new normal” and is almost certainly not likely to be as heated again as was the case during the frenzy of what has been described as “hyperglobalization” in the years leading up the trade collapse in 2009.
Research by analysts from Deutche Bank last month determined that “this anaemic development of world trade since 2012 is caused by combination of cyclical and structural factors which suggests that the favourable factors pushing up global trade in the past are losing impetus.” Some of the cyclical factors cited include “global overcapacities, weak commodity prices, elevated geopolitical risks and heightened uncertainty regarding the global outlook.”
As for the structural factors involved in the slowdown, a team of economists from the World Bank and the International Monetary Fund (IMF) writing in the December issue of the IMF magazine Finance & Development, suggest that “trade has been growing more slowly not only because world income growth is lower but also because trade itself has become much less responsive to income growth.” Consequently, accelerating global trade is unlikely to be the same contributor to broader economic growth that it was in the past. “That particular engine appears to have exhausted its propulsive energy for now,” they say.
The evolution of global supply chains and the increasing fragmentation of production driven primarily by the United States and China is what drove much of the rapid growth in international trade in the 1990s, the authors argue. But in recent years China, now the world’s largest trading nation, has effectively captured a growing share of those supply chains thanks to foreign investment and an increased focus on substituting domestic inputs for foreign inputs.
Future growth, the authors suggest, may have to come from “regions that have not yet made the most of global supply chains, such as south Asia, Africa, and South America” and in this respect both the G20 nations and emerging economies have a role to play to ensure such opportunities are not missed.