## GROWING THREATS TO GLOBAL TRADE

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### Overview
- Since the June 2019 article marking the 75th anniversary of Bretton Woods, policymakers in some of the world’s largest economies have chosen to halt further international integration and, in several instances, to embrace protectionist or nationalist policies.
- There is still no conclusive evidence that international trade is deglobalizing:
  - When measured in US dollars, global trade growth slowed after the global financial crisis in 2008–09 and declined sharply at the onset of the pandemic in 2020, but since then trade has rebounded to the highest value ever.
  - As a share of GDP, global trade has fallen modestly, driven mostly by China and India.
  - Imports of intermediates by the rest of the world are still growing; exports by the rest of the world are also growing.
- US and Chinese tariffs introduced in 2018 curtailed trade between the US and China but did not reduce global trade in the affected products; trade was reallocated among other countries.
- Regional and plurilateral trade agreements continued to be pursued (examples cited include members of the African Union, the Association of Southeast Asian Nations, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership).

### Hyperglobalization and the first-phase backlash (circa 1990s → ~2015–2018)
- Hyperglobalization achievements:
  - Dramatic reduction in extreme poverty (as defined by the World Bank) and large increases in standards of living and income per capita globally.
  - Consumers in open economies gained access to a wider variety of affordable goods; declining prices of air travel and electronics increased mobility and productivity.
  - Openness and market-oriented policies played an essential role in these outcomes.
- Distributional tensions:
  - Workers in advanced economies exposed to import competition from low-wage countries did worse than previous generations, with distinct geographic patterns tied to preexisting industrialization.
  - Globalization created large winners—multinational “superstar” firms and highly compensated individuals—resulting in distributional conflict.
  - Mainstream economists initially slow to acknowledge these effects; typical policy recommendation remained redistribution from winners to losers rather than protectionism.
- Political consequences around 2015:
  - Rise of Brexit, US tariffs and China’s retaliation, and resurgence of extremist views in Europe.
  - Backlash against globalization became politically salient despite entrenched global interconnections.

### Pandemic pressures and the second phase (2020)
- Calls for “resilience” increased at the onset of the COVID-19 pandemic, but resilience is shock-specific and lacks a single benchmark.
- COVID-19 acted as both a supply shock (lockdowns delaying deliveries) and a demand shock (surges in medical goods and durable goods).
- Evidence on trade and resilience:
  - Markets proved resilient; examples include the resumption of face mask shipments from China within months in 2020, alleviating shortages.
  - The US preserved trade relationships and importers sought new suppliers even as overall trade volume fell.
  - Quantitative model simulations (cited) show international trade increases diversification and resilience because supply shocks are less correlated across economies than within them.
- Conclusion: Arguments that trade fragility justifies protectionism are inconsistent with evidence; trade grew fast in 2021 as pandemic management improved.

### Geopolitical pressures and the third phase (from February 2022)
- Russia’s invasion of Ukraine (February 2022) highlighted risks of international specialization (e.g., gas supply cuts to Europe and energy price spikes).
- Policymakers began considering decoupling from adversarial partners on their own terms to reduce geopolitical vulnerability.
- Shifts in mindset:
  - Movement toward viewing international welfare as a zero-sum game.
  - The United States imposed export bans to China on advanced logic and memory chips and related machinery—technologies with both military and civilian applications—potentially retarding civilian technological development.
- Two possible trajectories:
  - Limited deglobalization: interventions limited to products with credible dual use while trade in other products continues.
  - Fragmentation: the world splits into rival camps (a new cold war between the US and China and their allies), with potentially severe consequences.

### New cold war scenario: economic and innovation costs
- Potential consequences of decoupling US and China research and collaboration:
  - Fewer solutions to pandemics and endemic diseases due to reduced scientific collaboration; population size and collaboration matter for research and development and new ideas.
- Decoupling removes potential low-cost suppliers:
  - Example: solar panel costs are substantially higher in the West than in China; industry estimates suggest tariffs have slowed solar installation—delays in decarbonization impose urgent and growing costs.
- Resilience trade-offs:
  - Trading only with “friendly” countries may increase near-term resilience to geopolitical shocks but reduce resilience to other shocks (e.g., health shocks); the definition of “friendship” can change over time.
- Distributional and development risks:
  - Within countries, greater trade barriers raise prices and lower real wages, likely increasing inequality.
  - Across countries, geoeconomic fragmentation could increase global inequality by raising entry barriers (environmental and labor standards) that hinder very poor countries’ access to lucrative foreign markets, jeopardizing poverty reduction and development pathways.

### Risks to peace and historical parallels
- Cold wars and fragmented trade can escalate geopolitical tensions:
  - Historical precedent in the 1930s: shift away from multilateral trade toward trade within empires or spheres of influence amplified tensions ahead of World War II.
- The greatest risk may be a deterioration in peace if current trends lead to a similar fracturing of the global economic order.

### Key scenarios and policy implications (implicit recommendations)
- Policy choices will determine outcomes; material possibilities include:
  - Limiting interventions to products with credible dual use to preserve broad-based trade and innovation.
  - Avoiding blanket protectionism, since evidence suggests international trade generally increases resilience and diversification.
  - Implementing redistribution policies within countries to address losers from trade rather than resorting to protectionism that raises prices and harms real wages.
  - Recognizing the urgency of climate action and the risks that trade barriers (tariffs, decoupling) pose to decarbonization efforts and associated costs.
  - Weighing geopolitical security concerns against long-term costs to innovation, development, and global inequality when considering decoupling strategies.

*Pinelopi K. Goldberg and Tristan Reed, “GROWING THREATS TO GLOBAL TRADE,” Finance & Development, June 2023.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2023/june/goldberg.pdf_