Global trade is experiencing a dramatic slowdown, just as leading political figures in the United States and elsewhere show an unusual level of hostility toward globalization.
The World Trade Organization announced Tuesday that the global trade will expand at the slowest pace this year since the financial crisis, reflecting weak economic growth and low levels of investment in factories and infrastructure in China, Brazil and North America. The group slashed its estimates for 2016 trade growth by more than one-third, to just 1.7 percent, and also cut its estimate for 2017 trade growth to a range of 1.8 percent to 3.1 percent, down from a previous estimate of 3.6 percent.
The night before, both major party presidential candidates, Donald Trump and Hillary Clinton, staked out positions skeptical of increased trade, expressing strong opposition to the big Asia trade deal that President Obama hopes to pass before his term runs out. While candidates had expressed concern about particular elements of trade policy in the past, perhaps no two candidates have so strongly agreed on the ill effects of expanded trade since the 1928 campaign that led to the election of Herbert Hoover.
Meanwhile, across the Atlantic, Britain is contemplating how to begin extricating itself from the European Union after voters chose in a referendum in June to leave the economic and political alliance.
Altogether, economists warn that the growing tide of protectionism could further weaken international trade, which has been an important driver of global growth and element of global security.
"There is this strong anti-globalization movement that’s really dangerous,” said Caroline Freund, a senior fellow at the Peterson Institute for International Economics and a former top economist for the World Bank. “One thing we know for sure is that closing our borders is not going to support growth or living standards in the U.S.”
In the debate at Hofstra University on Monday night, the two candidates showed differing levels of hostility to trade. Clinton reaffirmed her opposition to the Asian trade deal, known as the Trans-Pacific Partnership, while also explaining why she had opposed other trade deals, like one with Central America. Overall, she emphasized the need to negotiate "smart, fair trade deals." Meanwhile, Trump derided deals like the North American Free Trade Agreement, signed by President Bill Clinton, for sending American jobs overseas, calling it "the single worst trade deal ever approved in this country."
The comments reflected a growing skepticism of trade policy that has been building through the presidential campaign, fueled on the left also by Sen. Bernie Sanders, the Vermont independent who challenged Clinton for the Democratic nomination. Trump, breaking with traditional GOP orthodoxy supporting free trade, has blamed increased economic engagement with China and Mexico in particular for America's economic woes.
Economists said the candidates’ comments reflected a global trend toward growing suspicion of free trade and globalization. They cautioned that these attitudes could lead to misguided policies that aim to protect workers — but instead clamp down on prosperity, growth and trade.
In its news release, the WTO warned against this kind of backlash. “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, not only from the perspective of trade but also for job creation and economic growth and development which are so closely linked to an open trading system.”
The WTO said that trade could pick up in the second half of 2016, but the outlook remained unclear because of factors like the potential fallout from Britain’s decision to leave the European Union, known as Brexit, changes in monetary policy around the world, and growing anti-trade rhetoric.
Freund said the global slowdown in trade was due to a broader slump in investment that has clamped down on the purchases of goods used in factories and on construction sites, like machinery and equipment, as well as a general slowdown since the rapid economic growth and ample liberalization measures of the 1990s.
However, she cautioned that rising protectionism and the lack of a push toward free-trade policies could contribute to a further slowdown of trade growth in the future.
Freund also cited a growing political tendency to blame trade deals for a wide host of American economic ills, including the decline of manufacturing jobs, rising unemployment and growing inequality.
Economists say these economic ills are probably due to a combination of trends beyond just trade, including the rise of automation, the transformative effects of digital technology, and the long-term decline of labor unions.