1. World War II and the birth of the modern global economy
Since the end of World War II and the birth of the modern global economy, business leaders have
come to accept an iron law: International trade always expands faster than economic growth.
Between the late 1940s and 2013, that assumption held true. Trade grew roughly twice as fast as
the world economy annually, as fresh markets opened up, governments signed free-trade pacts,
new industries and consumers emerged, and technological advances made international trade
cheaper and faster.
Now this iron law may be crumbling. Over the past two years, international trade has grown so
slowly that it has fallen behind the growth of the world economy, which itself is hardly humming.
Major potential trade deals, such as the proposed Transatlantic Trade and Investment Partnership
between Europe and North America, are at risk of falling through. At an early December meeting
in Bali, representatives of the 159 members of the World Trade Organization agreed to move
forward with basic trade facilitation measures but failed to reach any consensus on what should
be on the table for the next WTO round, instead just deferring action on substantial items.
Despite such worrying trends, many economists and trade specialists seem unfazed. In its latest
research report, HSBC (HSBC) predicted that global trade will continue expanding by about 8
percent annually for the next two decades, outstripping the world’s economic expansion.
Such optimism is misplaced. Expectations that emerging markets could boom for decades
haven’t come true. Advances in technology over the past five years have facilitated the rise of
state capitalism and made it easier for companies to stay in their borders. And unlike at just about
any time in the past six decades, the political leadership of almost every major economy is weak,
making it easier for protectionism to flourish. The era of free trade as the world has known it is
dangerously close to coming to an end.