What It Means For...

...Globalisation ....US growth ....Other nations ...India

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resident Donald Trump's announcements of reciprocal tariffs on the US's trading partners, unless reversed, will inflict a massive blow to globalization as we know it. The US, as Trump's executive order announcing tariffs notes, was the vanguard of trade liberalization in the world and led the efforts to establish a multilateral trade regime, first under the General Agreement on Trade and Tariffs (GATT) and then the World Trade Organization (WTO).

The positive impact this multilateral trading regime had on global trade is unambiguously clear. Data from the World Bank shows that trade-GDP ratio for the world economy increased almost consistently between 1970 and 2008, with this number more than doubling from around 25% to 60%. This number has stagnated since. What is interesting is the fact that the US's own trade-GDP ratio is significantly lower than the world average although it has increased in almost the same proportion during this period.

That the stagnation in world's trade-GDP ratio coincides with the 2008 global financial crisis which triggered the biggest economic recession in the world after the Great Depression of 1939 is not a coincidence. The economic pain of the 2008 crisis inflicted a big shock to the political economy in advanced economies and eventually paved the way for political developments such as Trump's first election victory and Brexit in 2016. Even the global trading order, as characterized by the World Trade Organization's ministerial decisions has been largely defunct in the last decade or so.