Five pathways of slowbalisation

• Author: Zumer, Klemen; Navarra, Cecilia; Titievskaia, Jana; Stamegna, Carla; Kononenko, Vadim
• Pages: 5-20

Slowing down or changing track?

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2. Five pathways of slowbalisation

2.1. Slowing international trade

International trade collapsed during the global financial

crisis, and growth in trade has remained relatively weak

since then. Total merchandise trade by value dipped in

2009, grew in the following five years, and again

decreased in 2015.17 Since the aftermath of the global

financial crisis, the year-on-year annual growth in

international trade has been falling (see Figure 1). This

trend was exacerbated by the onset of US-China trade

tensions in 2019. Following the Covid-19 pandemic,

world trade fell abruptly, and global manufacturing

export orders fell below the lowest point of the global

financial crisis.18 In real terms, global trade has barely

grown in line with global GDP. This is striking, given that

trade has consistently outpaced GDP since the

mid-1800s, with the exception of the interwar years. In nominal terms, trade appears even weaker,

failing to keep up with GDP growth owing to the fall in the relative prices of traded goods and

services, particularly commodities. The financial cri sis also brought a halt to the rapid rise in standard

balance of payments based measures of financial openness.

Figure 1 – Growth in trade in goods (yearly % change)

Data source: International Monetary Fund.

17 WTO time series: World merchandise exports by product group and destination - annual (million US$), accessed

17.6.2020.

18 OECD Economic Outlook, Volume 2020 Issue 1, Chapter 1: General assessment of the macroeconomic situation.

EPRS | European Parliamentary Research Service

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The shift away from hyperglobalisation has also been visible in the realm of trade governance. The

cumulated number of trade restrictive measures has been increasing to historically high levels

among the G20.19 The European Commission has also reported a record high number of

protectionist barriers to trade around the world, reflecting a wider shift from liberal to managed

trade.20 In late 2019, the higher instance of the WTO two-step dispute settlement system ceased to

function, following the blockage by the USA of replacement of Appellate Body Members. In 2020,

the US administration announced it would attempt to renegotiate US tariff ceilings in the WTO.21

This could mark a departure from the downward trend in customs tariffs among WTO members after

the establishment of the WTO in the mid-1990s and after China joined the WTO in 2001 (see

Figure 2). World average applied tariffs declined from 8.57 % in 1994 to 2.57 % in 2017.22

Figure 2 – Applied weighted mean tariff rates on all products (%)

Data source: United Nations.

Several factors account for the slowdown in international trade. For one, the reduction of tariffs, as

well as transport (e.g. sea freight, shipping containers, passenger air flights) and communication

costs (e.g. international calling costs had long supported increases in particular of intra-industry

trade23). However, by the early 2000s, the fall in transaction costs began to level off. According to

the McKinsey Global Institute,24 as demand in China and developing countries grew, increasingly

more goods were consumed where they were produced. Development of domestic or regional

supply chains in emerging markets further decreased reliance on imports. Technological

developments made labour arbitrage (lower labour costs) a less congruent reason for offshoring

production. Finally, data collection issues mean that services trade as well as intermediate goods

trade, which have been expanding, are downplayed in accounting terms. In the context of

19 WTO Report on G20 Trade Measures, 2019.

20 European Commission, Trade and Investment Barriers Report, 2018.

21 Bloomberg, US weighs higher tariff ceilings in a bid for more sway over WTO, February 2020.

22 World Bank, Tariff rate, applied, weighted mean, all products (%) 1989-2017.

23 E. Ortiz-Ospina and D. Beltekian, Trade and Globalisation, Our World in Data, 2018.

24 McKinsey Global Institute, Globalisation in transition: the future of trade and value chains, 2019.