The Future of Global Trade
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Bibliographic details
- Authors: PINELOPI GOLDBERG
- Published: June 1, 2019
Overview
- Author: PINELOPI K. GOLDBERG, Elihu Professor of Economics and Global Affairs and affiliate of the Economic Growth Center at Yale University.
- Publication: F&D Magazine, The Future of Trade, June 2019.
- Core question: Does the recent rise of protectionism signify the end of the open, rules-based trading system, or can policy and reform rescue it?
- Context: The 75th anniversary of the Bretton Woods multilateral institutions coincides with pronounced doubts about multilateralism and the functioning of the current trading system.
Structural factors behind the trade slowdown
- Trade never regained its pre-2008 momentum after the global financial crisis; trade collapsed during the global financial crisis and world economy recovery was slow.
- Two dominant structural explanations cited:
- (1) The rebalancing of the Chinese economy and associated increase in China’s domestic value added.
- (2) The belief that the fragmentation of production has run its course, leaving limited scope for further international specialization (Hoekman 2015; Constantinescu, Mattoo, and Ruta 2016).
- Evidence on China:
- China experienced a pronounced decline in its domestic value added of exports until 2011 (with a short interruption during the financial crisis), and since 2011 domestic value added in China has been steadily increasing.
- Only Korea exhibits the same trend as China—an increase in domestic value added after 2011.
- Two consequences of changing fragmentation for measured trade:
- Trade is measured in gross terms, so higher fragmentation/global-value-chain participation implies more trade because of double-counting of inputs crossing borders.
- A decline in fragmentation and global-value-chain transactions will translate to less trade in gross terms.
- Evidence on fragmentation more broadly:
- Exports of intermediate products (value basis) exhibited strong growth until 2013, with a short disruption during the global financial crisis, but declined steadily between 2013 and 2016 (Chart 2 referenced).
- An alternative measure—the share of parts and components in volume terms in manufacturing trade—has increased at a moderate pace since the 1990s and has not shown signs of reversal since the global crisis.
- Within electronics (with a 40 percent share in parts and components trade): the share of parts and components trade relative to total trade decreased for office machinery and computers, but rose for telecommunications equipment.
- Global value chains are still expanding in terms of product and country coverage as measured by the number of product-country combinations, net of new products (Gaulier, Sztulman, and Ünal 2019).
- On automation and AI:
- Arguments that automation and artificial intelligence will lead to onshoring and less trade have not found empirical support; evidence suggests these advances may boost productivity and lead to more trade.
- Conclusion from structural analysis:
- Trade growth in parts most associated with fragmentation does not show clear signs of a slowdown. If a slowdown is not inevitable, policy can play a key role in shaping the future of trade.
- Indicator of waning liberalization appetite:
- The number of new regional trade agreements in 2018 fell to its lowest level since the early 1990s.
Sources of dissatisfaction with the current trading system and implications for reform
- Distributional concerns and political economy:
- Increasing inequality within advanced economies has contributed to receptiveness to protectionism.
- Evidence that gains from globalization were not shared equally; some countries (particularly in Africa and Latin America) were left behind.
- Perceived unfairness and rule concerns:
- Complaints about state subsidies, intellectual property rights, forced technology transfer, and exchange rate manipulation.
- Divergent views on the effectiveness of the present dispute settlement mechanism, the reach of subsidy disciplines, and treatment of state-owned enterprises.
- Institutional constraints:
- The WTO’s traditional all-or-nothing approach has become a straightjacket: the Kennedy Round took four years, the Doha Round (started in 2001) is considered stalled.
- Near-global membership and reach make consensus increasingly hard to achieve.
- Flexible approaches and examples:
- Plurilateral agreements among subsets of like-minded countries offer a second-best alternative when multilateral deals are not feasible; they remain in principle open to other WTO members later.
- Example: Information Technology Agreement, originally signed in 1996 and expanded in 2016, where 53 members agreed to tariff cuts applied to all WTO members.
- Example: Trade Facilitation Agreement adopted in 2013, which unbundled specific issues (improving customs practices) from broader initiatives.
- These two agreements illustrate the effectiveness of a more flexible WTO approach.
New substantive negotiating focuses
- The digital revolution has altered trade dynamics:
- Firms operate as links in global value chains across multiple countries; many services (banking, insurance) can be purchased cross-border; e-commerce is increasingly important.
- Policy implications:
- Growth in these areas requires addressing “behind the border” measures: harmonization of domestic regulations; agreement on intellectual property rights protection; consensus on data and privacy issues.
- Cross-national regulatory differences may reflect valid concerns (quality standards, exploitation of market power, data privacy); policymakers must balance legitimate domestic regulation against protectionist abuse.
- Trade policy alone is insufficient; regulatory cooperation and coordination are needed.
- Likely loci of cooperation:
- Cooperation to spur growth in trade, especially in services, seems more likely among economies at similar stages of development with similar objectives.
- Regional trade agreements could serve as a useful starting point and complement to multilateral platforms.
Key takeaways and policy implications
- Multilateralism remains valuable: a rules-based, predictable trading system contributed significantly to trade and trade-induced growth, especially in Europe and east Asia.
- Challenges:
- Not everyone benefited equally from globalization; protectionist pressures and dissatisfaction with WTO processes are rising.
- Structural changes—especially China’s rebalancing and changes in fragmentation—affect aggregate trade growth.
- Opportunities for reform:
- More flexible WTO strategies (plurilateral agreements, issue-specific multilateral deals) have shown effectiveness (e.g., Information Technology Agreement expansion in 2016; Trade Facilitation Agreement in 2013).
- Policy can shape the future of trade; regulatory cooperation, targeted plurilateral or regional initiatives, and addressing digital-era trade frictions are priorities.
- Final assessment:
- International trade is not doomed to a permanent slowdown. Its future will crucially depend on the policy choices made amid high uncertainty and backlash against globalization.
Source: The Future of Global Trade – F&D | The IMF at 75
Content in this bundle
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- L’avenir du commerce mondial – F&D | Le FMI a 75 ans
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- The Future of Trade - June 2019 | FINANCE & DEVELOPMENT | International Monetary Fund
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