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Could It Be That Free Trade Is Coming to an End?

Since the end of World War II and the birth of the modern global economy, business leaders have come to accept an iron law: International trade always expands faster than economic growth. Between the late 1940s and 2013, that assumption held true. Trade grew roughly twice as fast as the world economy annually, as fresh markets opened up, governments signed free-trade pacts, new industries and consumers emerged, and technological advances made international trade cheaper and faster. Now this iron law may be crumbling.

Could It Be That Free Trade Is Coming to an End?

Over the past two years, international trade has grown so slowly that it has fallen behind the growth of the world economy, which itself is hardly humming. Major potential trade deals, such as the proposed Transatlantic Trade and Investment Partnership between Europe and North America, are at risk of falling through. At an early December meeting in Bali, representatives of the 159 members of the World Trade Organization agreed to move forward with basic trade facilitation measures but failed to reach any consensus on what should be on the table for the next WTO round, instead just deferring action on substantial items.

Despite such worrying trends, many economists and trade specialists seem unfazed. In its latest research report, HSBC predicted that global trade will continue expanding by about 8 percent annually for the next two decades, outstripping the world’s economic expansion.

Such optimism is misplaced.

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Keywords: world economy, trade agreements, international trade, supply chain, logistics & supply chain, economic expansion

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