Headlines have been filled with news of trade wars and armed conflicts. Meanwhile, voices have been arguing for various forms of deglobalization. So, is the global order really under threat? And what do the data on trade and international commerce tell us about the state of globalization?
I recently watched Daria Taglioni’s Policy Research Talk on the topic of global trade and was struck by the findings shared. In this blog post, I’m highlighting three graphs that show the global picture is both more complex and the links of trade are stronger than many headlines suggest.
Faced with shocks and uncertainty, can global trade continue to be resilient?
Between 2018 and 2019, the U.S.-China trade war shook the global economy, ultimately affecting approximately $450 billion in annual trade. While the trade war did achieve its goal of reducing U.S.-China exports, the surprising twist was that China's role in global trade didn't diminish; it actually increased.
The impacts of this trade war reveal the complex interplay between protectionist policies, trade patterns, and country-specific factors. Further, China's increased centrality reveals that this country continues to be a major player in global trade. Remarkably, five years into trade tensions, global links have proven to be more resilient than regional links, indicating that the story of global trade is one of resilience. Despite ongoing trade tensions and calls for protectionist measures, firms continue to seek customers, suppliers, and partners around the world.
Are climate-motivated policies contributing to the surge in protectionism?
The rise of protectionist policies is often attributed to the desire to maintain a competitive edge and prevent economic losses. Hence, among the potential motivations for protectionist policies, one area of growing significance that researchers are exploring is climate policy.
Between 1997 and 2021, the number of climate-related trade policies have nearly tripled—indicating that climate policy could be a significant factor influencing global trade. This trend highlights that trade is increasingly a focus area of the regulators who work on green policies.
Although the impact of new policies depends on factors such as how they are implemented, emerging research shows that increasingly, newly introduced polices having the stated goal of helping preserve the planet are also increasingly motivated by maintaining a competitive edge or preventing domestic economic losses (leakage).
Can mobile phones survive in a world of protectionism?
If you’re reading this blog post, there’s a better than 50/50 chance it’s on a cell phone or some other kind of mobile device. Although most of us don’t give it much thought, this little device is a miracle of the modern, interconnected global economy—and perhaps only possible in such an interconnected world.
The various parts of the device are produced by highly specialized but geographically dispersed clusters of firms. If the links that allow these clusters of firms to work together were severed, it could be fatal to the mobile phone industry—and other high-tech sectors like it.
The interconnected nature of global trade allows industries to achieve incredible economies of scale, enabling the mass production of devices like your smartphone. However, it's not all smooth sailing. As countries engage in global value chains (GVCs), they become more susceptible to shocks originating from the global economy. Surprisingly, research suggests that, even in turbulent times, more interconnected firms tend to perform better economically. It's a testament to the resilience and adaptability of businesses in an ever-changing world and underlines the overall benefits of an interconnected global economy.
Thus, it is no surprise that decoupling is harder than it seems. And in many cases, it may not even be possible to disconnect manufacturers from key suppliers. Partial decoupling from this intricate ecosystem would incur significant costs, and complete decoupling could spell disaster for the industry.
A more nuanced picture of protectionist measures?
The three graphs provide a more detailed view of the global trade scenario, emphasizing the intricate web of connections that make up our interconnected world. While challenges exist, the solution may not be as simple as cutting ties, further underscoring the urgent need to address the international tensions that have increasingly dominated the global trade agenda.
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