"The downturn in world trade, exemplified by slumping Chinese exports and a decline in U.S. imports, mainly reflects a phase of weak global economic growth.
It also raises questions about whether deeper changes are under way, with decades of deepening global economic integration giving way to a new era in which the West and China do more business with their political friends and less with each other.
Geopolitical tensions, heightened by events in Ukraine, are leading to more curbs in the U.S. and Europe on doing business with China. The sheer scale and complexity of global trade and investment links, however, mean any process of disentangling the world economy into blocks of like-minded countries is likely to be gradual and incomplete.
Global trade is currently weak mostly because demand for goods is weak, economists say. Higher interest rates in the U.S., Europe and other economies battling with inflation have led to a broad global slowdown.
In addition, consumers who spent heavily on goods during and after the Covid-19 pandemic are now spending more of their disposable income on services, which -- with exceptions such as tourism -- are more likely to be locally produced. Manufacturing-heavy economies in Asia are feeling the fallout.
Trade in services is livelier than shipments of goods, thanks not least to the rebound in international travel and tourism, which is expected to recover this year to nearly its prepandemic level.
Inflation itself is also weighing on trade. Food and energy prices remain higher than before events in Ukraine and sanctions in early 2022, cutting into people's disposable income around the world, even though prices on commodities such as grain and natural gas have fallen from their peaks last year.
"The main story is probably related to the global slowdown in manufacturing, after the big surge in manufacturing that followed the pandemic," said Lorenzo Codogno, chief economist at LC Macro Advisors and a visiting professor at the London School of Economics. "Fragmentation, deglobalization, de-risking will play a bigger role in the coming years and could be very significant. But I'm skeptical that it can happen overnight," Codogno said.
Resilient U.S. consumer demand, helped by strong wage growth, has been a bright spot for the world economy. But the Federal Reserve's interest-rate increases are weighing on business investment, including spending on capital goods.
Trade data is beginning to reflect that. In the first half of this year, overall U.S. imports declined 4% from a year earlier, while exports grew 2.6%, the Commerce Department said Tuesday. Imports fell 1% in June from May to $313 billion, the lowest level since December 2021.
The International Monetary Fund expects growth in global trade to slow to 2% this year from 5.2% last year. The World Bank and the World Trade Organization both forecast trade will grow by just 1.7% this year.
Even a partial recovery in 2024 is predicted to fall well short of trade's average yearly growth of 4.9% during the two decades before the pandemic.
Economists at the IMF and other multilateral organizations mainly blame sluggish overall growth, especially in advanced economies. But they have also expressed concern about the long-term effect of geopolitical rivalries on global trade, with possible emergence of a trading bloc surrounding China and Russia an additional around the U.S. and its allies.
"We see the increase in trade restrictions that have been imposed by countries on one another," IMF chief economist Pierre-Olivier Gourinchas said in late July, pointing to a spread of tariffs and restrictive regulations. "There is an impact in terms of direct investment also and that is quite important." [1]
Additional problem
is that our leaders in the West are lacking vigor and imagination. They
behave like out of date warriors of the Cold War. More adequate behavior with less stupid sanctions
could leave us with smaller inflation, smaller interest rates and
smaller cracks in the global economy. Global South saved Russia from our sanctions. Global South is saving China from our sanctions the same way. Since China has what it takes to produce renewable energy at scale while we don't, we risk now that the West is late
switching to renewable energy in global markets and is becoming a
stinky backwater of humanity.
1. U.S. News: Sputtering Trade Fuels Concerns About a Fractured Global Economy. Walker, Marcus;
Hayashi, Yuka.
Wall Street Journal, Eastern edition; New York, N.Y.. 10 Aug 2023: A.4.
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