Why is The Global Commerce Slowing?

By FKlivestolearn | Technicity | 26 Dec 2024


Global trade growth has entered an unprecedented slowdown, reshaping the economic landscape and challenging decades of globalization.

For decades, the trajectory of world merchandise trade has been defined by sharp fluctuations, driven by global economic events and policy changes. However, since 2016, the landscape has shifted dramatically, ushering in an era of long-term slowdown in global trade growth.

The Historical Context

The data from the World Trade Organization (WTO) reveals a pattern of global trade growth, as measured by the 10-year rolling compound annual growth rate (CAGR), that reflects both periods of explosive expansion and sharp contraction. Notable eras of growth have often coincided with pivotal developments in the global economy, but they were just as often curtailed by crises and systemic shifts.

❎ 1970s Boom and Oil Crisis: The early 1970s saw rapid trade growth fueled by post-war recovery and international cooperation under the Bretton Woods system. However, the 1973-74 oil crisis marked a significant slowdown as surging energy prices dampened global economic activity.

❎ 1980s Recession: Growth rebounded briefly but was curtailed again by the early 1980s global recession. High inflation and unemployment in developed economies caused a contraction in trade activity.

❎ 1990s Recovery and Expansion: The end of the Cold War, the establishment of NAFTA in 1994, and the WTO’s creation in 1995 signaled a new era of liberalized trade. By the early 2000s, surging commodity prices and China's accession to the WTO spurred rapid growth.

❎ 2008 Global Financial Crisis: The global financial crisis in 2008 marked a sharp decline in trade, followed by a modest recovery that never reached the pre-crisis highs.

 

The Post-2016 Slowdown

Since 2016, the data illustrates a persistent slowdown in trade growth, marking a historical low in the long-term trajectory of global merchandise trade. Several factors have contributed to this trend:

❖ Protectionism and Geopolitical Tensions: Trade wars, particularly between major economies such as the United States and China, have dampened global trade flows. The resurgence of protectionist policies has reversed decades of liberalization.

❖ Technological and Supply Chain Disruptions: Advances in technology have reshaped supply chains, with many countries increasingly focusing on regionalization rather than global integration. This shift has led to reduced cross-border trade volumes.

❖ COVID-19 Pandemic: The pandemic in 2020 dealt a severe blow to global trade. Lockdowns, supply chain disruptions, and declining consumer demand caused one of the steepest declines in trade volumes in modern history.

❖ Global Economic Uncertainty: Persistent challenges such as inflation, fluctuating commodity prices, and geopolitical conflicts have created an environment of uncertainty, further discouraging trade growth.

Implications for the Global Economy

The deceleration of global trade growth has profound implications for economies worldwide. Trade has historically been a driver of economic development, lifting millions out of poverty and fostering innovation through competition. A prolonged slowdown could exacerbate economic disparities, limit growth opportunities for emerging economies, and stall progress in addressing global challenges such as climate change.

Moving Forward

To navigate this new era, policymakers and businesses must adapt to a changing trade landscape. Embracing regional trade agreements, investing in resilient supply chains, and fostering technological innovation will be crucial. At the same time, international cooperation will be essential to address systemic challenges and revive global trade growth.

As the world adjusts to this period of slower growth, the lessons of past decades underscore the need for adaptability and collaboration to ensure a sustainable and inclusive future for global trade.

Originally published at Substack.

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FKlivestolearn
FKlivestolearn

I am a prolific Blogger on Substack/Medium with a newsletter. Extensive trading experience in Forex & Stocks based on technical studies. Cryptocurrency trader and Enthusiast, Blockchain/Fintech Evangelist & generally just a Technology Freak.


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