The 2009 evaluation was published in the midst of the global financial crisis (GFC), and an associated sudden, severe, and synchronized collapse in international trade. After decades of strong growth in global trade, global trade volumes contracted by 12 percent in 2009, the largest such decline since World War II (WTO, 2010), notwithstanding commitments by G20 leaders to refrain from raising new barriers to investment or trade (Figure 1). Since then, as the global economy has regained its footing, trade has gradually recovered but overall has expanded much less rapidly than before the GFC, even after accounting for slower output growth. There has also been a striking shift in the country composition of trade, with rising importance of emerging market economies, particularly China.
International Trade Policy: Timeline of Selected External Events, 2000–19
Source: IEO calculations.Note: World trade refers to total exports of goods and services in percent of GDP in U.S. dollars.Fundamental changes have also taken place in underlying forces affecting global trade over the past decade. The rapid expansion of global value chains (GVCs) observed prior to 2008 came to an end and partly reversed, contributing to the stagnation of trade intensity. The reduced dynamism of goods trade has been attributed to multiple factors, including less easily available trade finance, the reduced investment intensity of production, realization of vulnerabilities of extended supply chains, and rising trade frictions (IMF, 2016; Shin, 2019). At the same time, the share of services in global trade, measured in value-added terms, has risen steadily, as the services content in merchandise—including software and embedded intellectual property—has risen (Dollar, 2019). Relatedly, the spread of digital technologies has transformed the character of global flows of goods, services, and data, enabling easy transportation and reproduction of digital goods as well as virtual or remote collaboration (McKinsey Global Institute, 2014).
While globalization has raised overall living standards, reduced poverty, and narrowed income gaps between countries, new trade patterns have disrupted industries and sources of employment and contributed to increased income inequality within countries, as domestic policies have generally been inadequate to address these dislocations and share the benefits of trade more widely (Johns and others, 2015). This trend has brought rising attention to the nature and scale of adjustment costs and to the distributional impacts of trade, prompting intensified analysis of the impacts on industries displaced by import competition and on labor markets and labor mobility, including opportunities to reskill and retrain displaced labor.4
At least partly in reaction to these stresses, there has been a loss of political support for globalization, increasing frustration about the inability of the multilateral trade system (MTS) to advance trade reforms, increasing trade tensions and a rise in protectionist measures. The adoption of trade-opening measures has decelerated and G20 members have increased trade-restrictive measures fourfold since 2009; in 2018, such measures (1,196) far outstripped liberalizing measures.5 Over the past three years, there has been increasing recourse to bilateral tariff increases by the United States seeking to address perceived abuses of the GTS and responses by the major trading partners—China and the European Union (EU). This context has increased uncertainty about future trading conditions and substantially escalated risks of a return to global trade protectionism and retaliatory actions seen in the 1930s. Reduced opportunities for growth through trade may also have contributed to rising migration flows from poorer to richer countries.
At the same time, the institutional framework that has supported multilateral trade and helped galvanize global growth over the past 70 years has weakened steadily. The failure to conclude the Doha Development Round eroded confidence in the multilateral trade system and WTO members have increasingly turned from multilateral to plurilateral or flexible negotiating approaches to achieve new market-opening agreements.6 The 2017 WTO Trade Facilitation Agreement represented the first and so far the only multilateral trade agreement since the WTO was established. The reform of the WTO, needed to reflect changes in the global economy, has languished and there has been little progress in areas critical to the expansion of global trade, including in services, investment restrictions, agricultural subsidies, and digital trade. In addition, the WTO’s appellate process is facing crisis and will become inoperative by December 2019 if the selection of new Appellate Body members is not unblocked, increasing the urgency of restoring and strengthening the commitment to an open, rules-based multilateral trading system (Payosova and others, 2018).
