The steady march of globalization that powered the world economy for the past 30 years is stalling out at a time when leading political figures in the United States and elsewhere have become increasingly hostile to international trade.
The World Trade Organization said Tuesday that growth in global trade would fall to 1.7 percent this year, the slowest pace since the 2009 financial crisis and part of a vicious cycle that has dragged down broader economic growth. Formerly highflying countries such as China and Brazil are spending less on manufacturing equipment and railroads, while stalwarts such as Europe and Japan are fighting the perilous phenomenon of falling prices known as deflation — leaving nations with little appetite for trading with one another.
Economists say the slowdown in trade could carry significant risks for workers in the United States. Although advocates of trade barriers say they could protect more American jobs from going overseas, most economists say tariffs would raise costs for American manufacturers and consumers, imperiling an already fragile economy. Meanwhile, cutting off emerging markets could threaten the livelihoods of workers around the world. Globalization was instrumental in reducing the number of people who live in extreme poverty by half over roughly the past two decades, according to the World Bank.
The WTO report comes on the heels of the first presidential debate, in which Donald Trump and Hillary Clinton showed unusual agreement in sharply criticizing past trade deals and questioning the benefits of approving a new agreement with 11 countries along the Pacific Rim. Instead, Clinton called for “smart, fair trade deals.” Trump, who has made opposing the Trans-Pacific Partnership a centerpiece of his campaign, threatened to raise tariffs and pull out of existing agreements.
But the wave of globalization that sparked political outrage is actually already waning. The WTO slashed its estimate for 2016 trade growth by more than one-third, to just 1.7 percent from a previous estimate of 2.8 percent made in April. It also cut estimates for 2017 trade growth, citing uncertainty about the global economy.
China’s economy is slowing after years of driving trade growth as it gobbled up raw materials and exported goods around the world. Falling commodity prices have pushed Brazil, another major exporter, deeper into recession. Advanced economies such as the United States, Europe and Japan have been slow to recover, weighing on demand for imported goods. And Britain has voted to leave the European Union and its single market.
“The dramatic slowing of trade growth is serious and should serve as a wake-up call,” said Roberto Azevêdo, the WTO’s director general. “We need to make sure that this does not translate into misguided policies that could make the situation much worse.”
But at Hofstra University in New York on Monday, skepticism of trade policy that has been building throughout the presidential campaign was on full display. It has been fueled on the left by Bernie Sanders, the senator from Vermont who challenged Clinton for the Democratic nomination. And although Republicans have historically supported free trade, Trump has blamed increased economic engagement with China and Mexico in particular for America’s woes.
During the debate, Clinton reaffirmed her opposition to the TPP while also reminding voters that she voted against a trade agreement with Central American countries in 2005. Meanwhile, Trump derided deals such as the North American Free Trade Agreement, signed by President Bill Clinton, as sending American jobs overseas, calling it “the single worst trade deal ever approved in this country.”
Economists generally maintain that the benefits of trade remain much larger than the costs — although there is growing recognition that those costs are painful and often fall narrowly on one group. One widely cited study by MIT economist David Autor and colleagues found that an increase in imports from China cost the United States roughly 2.4 million jobs from 1999 through 2011.
Harvard University economist Greg Mankiw said that the U.S. recovery has been sluggish and that the wealth the country is producing is not being equitably distributed.
“There’s no question that there are economic trends that are disturbing, and that will make people feel concerned about the economy,” he said. “And the prosperity we do have isn’t being widely shared. . . . These are real trends that are making people feel unhappy.”
At the same time, he added, he would not put the blame for those trends on trade agreements.
Many economists say trade has been made a scapegoat for a host of economic ills — including the decline of the manufacturing sector, falling employment and growing inequality — that are likely more closely linked to the way technology is transforming low-skilled work. “At the time of weak growth and economic uncertainty, there is a desire to look for a bogeyman outside the country,” said Eswar Prasad, a professor of trade policy at Cornell University and a senior fellow at the Brookings Institution.
The slowdown in global trade has been a focus of international policymakers in recent months. A report on global competitiveness also released Tuesday by the World Economic Forum argued that the degree to which economies are open to international trade in goods and services has been steadily declining for the past decade. It also warned that barriers to trade could hurt prosperity in the future.
Data from the International Monetary Fund reveals a similar slowdown in trade. The IMF estimates that global trade will grow a paltry 2 percent this year — just a fraction of the 7 percent pace regularly seen in the 1980s and 1990s. In a speech in Toronto this month, IMF Managing Director Christine Lagarde urged countries to do more to help workers left behind by globalization, but not to give up on the principles of free trade.
“History clearly tells us that closing borders or increasing protectionism is not the way to go,” Lagarde said. “We need to make globalization work for all.”