The global economy has entered a new phase in which a setback is imminent

After trade had grown from 30 percent of world GDP to over 40 percent during the industrial age, it had fallen to about 15 percent by the end of World War II.

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Third, the era of tariff reform came between 1945 and 1980. Even before the end of the war, the Allies knew they had to fix the world economy. They decided to move to a fixed exchange rate system and set up the IMF and World Bank. Most notably, they created the General Agreement on Tariffs and Trade (now the World Trade Organization).

The GATT organized eight consecutive “rounds” of multilateral trade negotiations in which developed countries agreed to major reductions in their import barriers. Thanks to all of this, trade has doubled from 15 percent of world GDP to 30 percent.

This led to the era of “hyperglobalization” between 1980 and 2008, which ended the Cold War with the fall of the Berlin Wall in 1989 and the collapse of the Soviet Union.

The eighth, largest and final “Uruguay” round of the GATT in 1994 focused on increasing trade between developed and developing countries, with many poor economies joining the WTO.

China’s economy began to grow rapidly after opening up in the late 1970s, and in 2001 the GATT was allowed to join the GATT, boosting its trade tremendously.

The era also saw a move to floating exchange rates and the deregulation of banking systems, leading to greatly increased investment between rich and poor countries.

Also, major advances in telecommunications, computerization and the advent of the internet have enabled an increase in trade in digital services, including computing.

As a result of all this, trade peaked at more than 55 percent of world GDP in 2008, on the eve of the global financial crisis and Great Recession.

The IMF bloggers describe the current period with numbers from 2008 to 2021 as an era of “slowing down”. To date, these figures confirm this: trade has reached a plateau of around 55 percent. More recent figures show that world trade has largely recovered from the initial impact of the pandemic’s global corona recession.

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It appears that the combined effect of the Great Recession and rising protectionist sentiment has kept trade from expanding further relative to global GDP, but has not caused it to fall back – or not yet.

Less optimistic observers, however, describe the present as an era of “deglobalization”. They fear we are in the early stages of a period of “politically driven geoeconomic fragmentation.”

It’s not hard to see what’s troubling her. First we had Britain’s decision to leave the European Union, then the election of Donald Trump, who vowed to “make America great again” by imposing tariff barriers on exports of friend and foe alike and starting a trade war with China.

Now many countries are using trade and other economic sanctions to punish Russia in its war against Ukraine, which is fragmenting world trade.

US President Joe Biden has toned down the excesses of his predecessor, but has not given up on the trade war. This is less about protectionism and more about America’s desire not to be overtaken by China as the world’s dominant superpower. In particular, the US wants to stay ahead of the Chinese in advanced digital technology by denying them access to the latest and greatest semiconductors.

The risk is that the two could end up splitting the world economy into separate trading blocs, America and its democratic friends versus China and its autocratic friends. This would almost certainly slow economic growth for both groups.

And like the economist Dr. John Edwards wrote, dividing the world of commerce into good and evil would not suit us or our region. Our exports to China far exceed our exports to the US and other close security allies.

And all East Asian economies – including Japan and South Korea – have China as a major trading partner. Incidentally, China and the US are important trading partners for each other.

Fortunately, and for all the arguments we’ve seen, Edwards and others find no evidence that the US and China have already begun to “decouple”.

Let’s hope that economic sense prevails and that it stays that way.

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