Sputtering Trade Fuels Fears for a Connected World
The downturn in world trade, exemplified by slumping Chinese exports and a decline in U.S. imports, mainly reflects a phase of weak global economic growth. It also raises questions about whether deeper changes are under way, with decades of deepening global economic integration giving way to a new era in which the West and China do more business with their political friends and less with each other.
Geopolitical tensions, heightened by Russia’s invasion of Ukraine, are leading to more curbs in the U.S. and Europe on doing business with China. The sheer scale and complexity of global trade and investment links, however, mean any process of disentangling the world economy into blocks of like-minded countries is likely to be gradual and incomplete.
Global trade is currently weak mostly because demand for goods is weak, economists say. Higher interest rates in the U.S., Europe and other economies battling with inflation have led to a broad global slowdown. In addition, consumers who spent heavily on goods during and after the Covid-19 pandemic are now spending more of their disposable income on services, which—with exceptions such as tourism—are more likely to be locally produced.
Manufacturing-heavy economies in Asia are feeling the fallout. Trade in services is livelier than shipments of goods, thanks not least to the rebound in international travel and tourism, which is expected to recover this year to nearly its prepandemic level. Inflation itself is also weighing on trade.
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