Fin

The recent decades of U.S.-led trade liberalization are over. Say hello to managed trade

- Peter Coy

At age 85, Jagdish Bhagwati has defended free trade for decades. The professor of economics and law at Columbia University even wrote a 2004 book called In Defense of Globalization. He doesn’t like the way things have gone lately. “My worry is basically that around the world, there are very different reasons why people are beginning to despair about free trade,” he says.

As economists such as Bhagwati never tire of saying, international trade lowers prices and increases variety by allowing producers in different nations to specialize in what they do best. It promotes productivity and innovation. The entry of China and India into the world trading system has lifted hundreds of millions of people from destitution.

But free trade has always faced a chorus of critics ranging from labor unions to environmentalists to national security types, from powerful corporations to those suspicious of powerful corporations. And now some of the players that worked hardest to counter those forces and make trade freer—such as the U.S. government—are themselves turning cool to it.

Trade-in goods and services as a share of world gross domestic product has flattened out in the past several years after decades of increasing, according to data collected by the World Trade Organization. Trade-in goods alone has been falling since around 2010 as a share of world GDP, perhaps because of a partial unraveling of global supply chains, according to an analysis by Hyun Song Shin, economic adviser and head of research at the Bank for International Settlements. Trade policy is a factor: “I wouldn’t say multilateralism is on life support, but it’s time for the major partners to reinvest energy in the global trading system, rather than build up walls, before it’s too late,” says Myron Brilliant, executive vice president and head of international affairs for the U.S. Chamber of Commerce.