While in 1970, trade represented about 29% of the world’s gross domestic product (GDP), as of 2018, it exceeded 60% of world GDP.
At the beginning of the 15th century, with the arrival of colonization and the discovery of America, what began as a commercial phenomenon that we call triangular trade, became, over time, the seed of what we would later call globalization. A globalization that, apologizing for the possible discrepancies generated based on the brief introduction previously exposed, is already present throughout the planet. Well, with the rise of telecommunications and the improvement of transportation over the years, the planet has gone from being a cast of hostile and isolated territories, to being, as it is today, a cast of interdependent and associated regions . Regions that promote exchange and contact on a daily basis.
However, with the arrival of COVID and the crisis that has been derived from it, many have been scientists, as well as professionals, who have questioned the efficiency of global trade and economic globalization. This greater integration of the territories, as well as the dependence that they had generated among themselves, was being questioned by a pandemic that, due to its nature, caused the forced paralysis of value chains at a global level. This stoppage, being its purpose to contain the virus and stop the high contagion rate that it showed, caused the traffic of goods to be blocked, causing a shortage in those countries that, due to the structure of their economy, presented a greater dependence of imports.
Thus, with Donald Trump being one of the main political leaders who supported this new cause, a new protectionist movement was initiated that advocated the withdrawal of the different value chains, the objective of this policy being to favor those territories that, being integrated into the value chain at the global level, were in the last links of it. Well, when new outbreaks began to occur and having to live with COVID, the risk that imports to those most dependent countries could be hindered was a risk that, for the defenders of this theory, could not be assumed.
The trade war and other factors that have been weakening global trade
Despite the fact that COVID-19 has exposed the protectionist thinking of certain political leaders, it has been showing itself on the political spectrum for years.
Despite the fact that institutions have appeared to control excesses of trade, as well as actions that, having been carried out by certain countries, may harm others, the relationship between the countries that trade in the global market is not all good that it might seem. In this sense, the trade war between China and the United States is an example of this. This happened after the International Monetary Fund (IMF) and the World Trade Organization (WTO) ruled in favor of China in the complaints issued by the United States. These complaints which, despite not being substantiated by the agencies, are based on the use of currency devaluation policies to favor their commercial competition; something of which the United States has accused China on multiple occasions before these international organizations.
This type of situation has opened wounds that, for the moment, persist in our geopolitical relations. The trade war initiated by the United States has affected global trade, as never before has a conflict like this, markedly. In addition, it has not only caused a paralysis in the trade of goods, but has also given rise to other political formations, from other countries outside the United States, to promote a message of protectionism and trade control to put an end to a phenomenon that, like we had been commenting previously, it has been developing for centuries on our planet.
The fact is that this set of factors, such as the new tariffs and retaliatory measures that affect the most traded goods, the weakening of world economic growth, the volatility of financial markets and the imposition of stricter monetary conditions in the developed countries, have been a drag on trade growth in past years.In addition, the synchronized deceleration that the economies were experiencing, leaving a weaker growth than the one previously registered by the countries, flood the scenario with risks and uncertainties that dot one of the best growth engines, as shown by the data presented, of the economy at global level.
An engine for economic growth
With the passage of time, and especially after the interwar period, institutional bodies have developed that, in a certain way, made it possible to model what would be the new institutions under which the organization and structure of a globalized world would be protected. Through organizations such as the IMF, the UN, as well as the WTO, among many others, an attempt has been made to generate democratic regulation for decision-making, as well as conflict resolution, in everything that concerns globalization, as well as events that, even though they are independent, have any relationship with it.
Thanks to these organizations, commerce, for example, has experienced decades of integration that have made it an immune sector to any economic debacle. So much so that, when we look at the figures presented by the foreign sector for the most commercially active countries, we can observe the great boost that trade has experienced over the years, as well as the growing dependence of certain economies on said phenomenon, given their penetration in the composition of their economies and, especially, their GDP. All this, taking into account that we are talking about an immune sector due to the mere fact that, even though there have been large crises such as the one that occurred in 2008, if there has been a sector that has come out strengthened from these periods, that has been the international trade.
In addition, the importance of global trade should be highlighted. Well, if we look at an exporting country such as China, we can see how this commitment to global trade, as well as occupying a prominent position in this sector, has led this country, in a matter of 20 years, to increase so exponentially its gross domestic product, which, as a merely anecdotal fact, has already exceeded the GDP of all the Eurozone countries. This has been possible thanks to the integration of China in international markets, as well as its commitment to industry and the foreign sector.
A situation similar to that which, despite showing great differences, now occurs in Mexico. And it is that, among the bets of this country to emerge stronger from this crisis, due to Mexico’s dependence on the foreign sector, is the new Free Trade Agreement with North America (NAFTA).
To get an idea of what we are talking about, according to historical data offered by the World Bank, while in 1970 trade represented about 29% of world GDP, by mid-2018, it already exceeded 60% of world GDP. In this sense, in the light of the data, international trade has doubled its weight in reference to the set that represents the entire gross domestic product of the entire planet. All this, due to the great contribution of international trade to economic growth, since, as highlighted by the International Monetary Fund with a study carried out by Yale University, countries that have economies oriented abroad, in the same way, also have higher growth ratios. And, as the study shows, under certain assumptions, the opening of trade abroad promotes stronger economic growth than in others, with closed economies.
All this, bearing in mind that we are not only talking about a global trade that has benefited the exporting powers, but has also done so in an inclusive way and integrating the set of economies on the planet. So much so that, as the latest WTO trade report shows, trade, which does not stop growing and expanding, has benefited more and more economies on the planet. In this sense, developing economies outperformed or equaled developed economies in terms of world trade in most of the last ten (10) years.
Therefore, given the data, few reasons remain not to bet on international trade. Especially in a scenario in which few sectors will be reinforced after what happened with the pandemic.