Why Is Global Trade Growing So Slowly?

Executive Summary

There is a high degree of correlation between global trade growth and growth in global economic activity but, the former, has generally grown in excess of the latter over the past few decades. The successive rounds of multi-lateral trade liberalization that occurred in the decades following the Second World War lubricated the wheels of global trade over and above growth in global economic activity by reducing the relative price of exports via tariff reduction. In addition, the fragmentation of production processes as manufacturers moved production facilities to low-cost developing economies also helped spur export growth.

Not only are global exports growing at the lackluster rate of only 3 percent or so at present, but global trade is growing more or less in line with global economic activity at present. Talks on multilateral trade liberalization have stalled over the past decade, and the fragmentation of production processes may have reached a high-water mark, at least for now, as foreign direct investment in developing economies appears to have topped out. The International Monetary Fund forecasts that global trade growth will strengthen over the next few years, but it will likely not exceed growth in global economic activity to the same extent as it did during the past few decades.