Few appear to be noticing, but global trade is no longer rising

By Binyamin Appelbaum / NY Times News Service





The constant flow of goods from Asia to the US was briefly interrupted last month after Hanjin, the South Korean shipping line, filed for bankruptcy, stranding several dozen of its cargo ships on the high seas.

It was a moment that made literal the stagnation of globalization.

The growth of trade among nations is among the most consequential and controversial economic developments of recent decades. Yet despite the noisy debates, which have reached new heights during the current US presidential campaign, it is a little-noticed fact that trade is no longer rising.

The volume of global trade was flat in the first quarter of this year, then fell 0.8 percent in the second quarter, according to statisticians in the Netherlands, which happens to keep the best data.

The US is no exception to the broader trend. The total value of US imports and exports fell more than US$200 billion last year. Through the first nine months of this year, trade fell an additional US$470 billion.

It is the first time since World War II that trade with other nations has declined during a period of economic growth.

Sluggish global economic growth is both a cause and a result of the slowdown. In better times, prosperity increased trade and trade increased prosperity. Now the wheel is turning in the opposite direction. Reduced consumption and investment are dragging on trade, which is slowing growth.

However, there are also signs that the slowdown is becoming structural. Developed nations appear to be backing away from globalization.

The WTO’s most recent round of global trade talks ended in failure last year. The Trans-Pacific Partnership, an attempt to forge a regional agreement among Pacific Rim nations, also is foundering. It is opposed by both major-party US presidential candidates. Meanwhile, new barriers are rising. Britain is leaving the EU. The WTO said in July that its members had put in place more than 2,100 new restrictions on trade since 2008.

“Curbing free trade would be stalling an engine that has brought unprecedented welfare gains around the world over many decades,” IMF managing director Christine Lagarde wrote in a recent call for nations to renew their commitment to trade.

Against the tide, the EU and Canada on Sunday signed a new trade deal.

It might be hard, however, to muster public enthusiasm in the US and other developed nations. The benefits of globalization have accrued disproportionately to the wealthy, while the costs have fallen on displaced workers, and governments have failed to ease their pain.

‧ The Wal-Mart revolution is over.

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 was the Wal-Mart era.

However, those changes have played out. Europe is fraying around the edges; low tariffs and transportation costs cannot get much lower. China’s role in the global economy is changing. The country is 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.

The IMF last year reported that the share of imported components in products “Made in China” has fallen to 35 percent from 60 percent in the 1990s.

The result: The IMF study calculated that a 1 percent increase in global growth increased trade volumes by 2.5 percent in the 1990s, while in recent years, the same growth has increased trade by just 0.7 percent.

Hanjin, like other big shipping companies, bet that global trade would continue to expand rapidly. In 2009, the world’s cargo lines had enough room to carry 12.1 million of the standardized shipping containers that have played a crucial, if quiet, role in the rise of global trade. By last year, they had room for 19.9 million — much of it unneeded.

‧ India is not China redux.

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

China joined this club the old-fashioned way: It used factories to build a middle class. However, the automation of factory work is making it harder for other nations to follow.

Dani Rodrik, a Harvard economist, calculates that manufacturing employment in India and other developing nations has peaked, a phenomenon he calls premature deindustrialization.

The weakness of the global economy is exacerbating the trend. Infrastructure investment by multinational corporations declined for the third straight year last year, according to the UN. It predicts a further decline this year.

However, even if growth rebounds, automation reduces the incentives to invest in the low-labor-cost developing world, and it reduces the benefits of such investments for the residents of developing countries.

‧ The political reaction is global, too.

Economist Branko Milanovic published a chart in 2012 that is sometimes called the elephant chart, because there is a certain resemblance. It shows real incomes rose significantly for most of the world’s population between 1988 and 2008, but not for most residents of the US and other developed countries.

The chart is often presented as a depiction of the consequences of globalization. The reality is more complicated, but perception is undeniable. Voters in developed nations increasingly view themselves as the victims of trade with the developing world — and a backlash is brewing.

Republican US presidential candidate Donald Trump’s campaign is an obvious manifestation, as is his Democratic rival Hillary Rodham Clinton’s backing off from her support of the Trans-Pacific Partnership trade deal.

A study published in April found that voters in congressional districts hit hardest by job losses are more likely to reject moderate candidates, turning instead to candidates who take more extreme positions.

Economic stagnation is turning European voters against trade, too.

Rodrik said that proponents of free trade were guilty of overstating the benefits and understating the costs.

“Because they failed to provide those distinctions and caveats, now trade gets tarred with all kinds of ills even when it’s not deserved,” he said. “If the demagogues and nativists making nonsensical claims about trade are getting a hearing, it is trade’s cheerleaders that deserve some of the blame.”