How is international trade going? The world is going through a new phase

July 21, 2023

International trade refers to global transactions of goods and services. Its determinants are the economic development of the major powers, geopolitical contradictions that alter balances of power, and technological development.

International trade, Foreign trade, Trade, Más Colombia, Exports, Imports, Globalization,

International trade is measured by the sum of imports and exports of all countries. Since 1995, according to the World Trade Organization (WTO), global trade has risen steadily, increasing 1.9 times faster than economic growth.

From 2008 onwards, in the wake of the financial crisis, international trade slowed down followed by a slow recovery until 2020, when the pandemic produced a huge slump mainly driven by Asian countries, from which the world has been recovering.

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A decade of international trade expansion: the 1990s

Over the past 30 years, international trade has undergone sharp variations. It went from an extraordinary boom in the 1990s to a phase of fragmentation and relative decline in the last decade.

In the 1990s, several events came together to influence its expansion. The fall of the Berlin Wall (1991) allowed the incorporation of all of Eastern Europe and the Soviet Union into global trade flows.

This decade also saw the creation of the World Trade Organization (WTO) in 1995, which liberalized a large part of trade flows, eliminating various barriers imposed by States through tariffs and administrative controls.

Around the same time, a multitude of bilateral free trade agreements emerged, such as the one signed between the United States, Mexico and Canada (1994). Subsequently, negotiations for the Free Trade Area of the Americas (FTAA) began in 1998, but ended in failure in 2005.

At the same time, numerous bilateral international trade liberalization treaties were signed, such as CAFTA DR (2004), between the United States, several Central American countries and the Dominican Republic.

Treaties were also signed with some Andean countries such as Colombia (2007) and Peru (2006), preceded by the treaty signed between the United States and Chile in 2003.

Numerous countries signed such treaties. The European Union was a major player in them and also countries in Asia and Africa signed them, such as South Korea, Israel, Japan, Bahrain and Jordan, among many others.

The United States has fourteen free trade agreements to strengthen its international trade and the last one signed was with South Korea in 2014. The European Union has more than 40 treaties.

A change in trend since 2008

Between 1995 and 2014, this context encouraged international trade in several countries around the world, but China’s accession to the WTO in 2001 also played an important role, enabling the Asian giant to break into world markets and become the world’s leading trading power today.

However, this trend towards trade integration has encountered a number of difficulties over the past 10 years.

The process triggered by the WTO has been plagued by difficulties due to the maintenance of subsidies by developed countries for their agricultural production. In addition, numerous disagreements among participants have prevented further trade liberalization.

No treaties have been signed between the strongest trading blocs, such as China and the Pacific Rim countries with the United States, Europe and the United States, Russia and the Western countries. Nor between the countries of Western Europe and the new European countries that were part of the Soviet bloc.

However, the intensification of geopolitical conflicts has led to a loss of dynamism in international trade. Sanctions against Russia, since 2014, and the decision by the United States, under Donald Trump, to declare trade war on China in 2019, thereby declaring it a systemic rival and global competitor, have played an important role in this.

This trend of slowing international trade was exacerbated during the Coronavirus pandemic, in which many global supply chains were broken, there was a crisis in international trade due to the unavailability of containers, and there was an increased emphasis on regional trade.

The golden age of globalization seems to be over. The war in Ukraine further fragmented world markets and international trade was affected by the multiple protectionist measures that accentuated the paralysis of the WTO. It has been almost 10 years since new free trade agreements have been signed.

The trend towards global expansion of production has been replaced by the relocation of manufacturing plants, in response to the search for customers and suppliers closer to consumers.

The declining economic dominance of the United States, China’s greater emphasis on its domestic market and the relative weakening of Europe have major commercial implications.

However, the new animators of international trade are the countries of Asia, which have experienced impressive economic and international trade growth. It is possible that the future of commercial transactions will change its axis, but the words globalization and free trade will not have the same meaning as in the 1990s. The prospect will be fragmentation, the consolidation of regional blocs and the resurgence of economic nationalism.