Have We Reached the End of Globalization?

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For much of the last thirty years there has been a steady trend in commerce: global trade has expanded at about twice the pace of the global economy. For example, between 1988 and 2007, global trade grew on average by 6.2 percent a year according to the World Trade Organization. During the same period, the world’s GDP was growing at nearly half that pace: 3.7 percent.

But a strange thing has taken place in the last two years. Growth in global trade has dropped dramatically, to even less than GDP growth. The change leaves one wondering: has the incredible transfer of goods around the world reached some sort of pinnacle? Have we exhausted the drive toward ever-more-globalization?

It’s a fascinating thesis. The world has seen historic developments in the last few decades: the internet, China’s opening up, the rise of emerging markets, fast and cheap travel…all of these trends led to a massive acceleration in global trade.

But have those trends peaked? Could the next big invention, say, 3-D printers, end the need for more and more trade? Imagine a world where you need a new faucet in your restroom. Instead of going to the local store that sells faucets made in China (which contributes to global trade) now you just print out your own faucet, sitting at home or at a local store. Are people also getting more interested in local products compared to global brands.

Joshua Cooper Ramo points out in an essay in Fortune that localism is one the rise – local banking, local manufacturing, and even local sourcing for food and restaurants. Is this simply a pause or could it be more than that? The answer will depend on politics.

The last time the world saw a consistent period where the growth of global trade lagged behind global growth was in the 1920s, 30s, and 40s. One factor was the rise in protectionist policies – as a response in many cases to the Great Depression and the disruption of the gold standard. At one point, under what was known as the Smoot-Hawley tariff, the United States government began imposing import duties of around 60 percent. The move was aimed at protecting domestic farmers, but instead, it exacerbated the depression. It led to a steep drop in trade, and a wave of counter protectionist measures by other countries.

The world has learned its lessons from the Great Depression. But perhaps not as well as it should have.

According to the independent think tank Global Trade Alert, we’re in the midst of a great rise in protectionism. In the 12 months preceding May 2013, governments around the world imposed three times as many protectionist measures than moves to open up. Anti-trade policies are at their highest point since the 2008 financial crisis. According to the Petersen Institute, the rise of these measures cost global trade 93 billion dollars in 2010.

There might be some good news on this front. Last month, the World Trade Organization passed a deal to cut red tape in customs. It’s a small start, and there is a lot more to accomplish. Globalization and trade have produced huge benefits for people, especially the poor, who have been able to make their way out of poverty in a faster growing and more connected global economy. But globalization won’t continue by accident or stealth – politicians will have to help make it happen.