Global Trade Slowdown Threatening Global Growth

Chennai: Rapid expansion of global trade since the 1990s was a key contributor to the rise in global GDP. However, the slowdown in trade since 2020 is threatening global growth.

Trade accounted for 60 per cent of the global GDP in 2024, up from 41 per cent in the 1990s. Rapid expansion of global trade since the 1990s was a key contributor to the rise in global GDP. Trade also contributed to productivity growth across the world through the diffusion of technology and enabled the rise in per capita income.

However, global trade grew by just 2.3 per cent between 2020 and 2024, the slowest half-decade performance since the 1980s. In 2024, global merchandise trade grew by just 2 per cent in comparison to 9 per cent growth in trade of global commercial services, finds Care Ratings.

The standoff between the US and China is threatening global trade and GDP growth as they accounted for about 35 per cent of global GDP in 2024, up from 31.5 per cent in 2014. Similarly, they accounted for 24 per cent of merchandise trade in 2024, up from 21 per cent in 2014. The US is the world’s largest consumer, while China is the world’s largest producer. Slowing merchandise trade growth in China has also put downward pressure on the global trade growth.

In 2020, an average of just five trade agreements were signed each year, less than half the number in the previous decade. Restrictive measures like import tariffs, high excise duties, and anti-dumping have increased more than liberalizing measures like production subsidies, labour market access, and state aid across the world.

US trade policy has become more unpredictable under Trump 2.0 and tariffs imposed by the US and China this time are much higher than during the first trade war. Recent US actions, like curbs on AI chip exports to China, have further strained relations and dented market sentiment.

Around 33 per cent of anti-dumping investigations have been initiated against China. Base metals, chemicals, plastic and rubber materials account for about 60 per cent of anti-dumping investigations. With higher US tariffs imposed on China, there are heightened risks of disruptions in the global supply chain owing to dumping from China.

The trade standoff saw global growth weakening to 3.3 per cent in 2024 compared to 3.8 per cent in 2017 before the first US-China trade war. Global government debt rose substantially post pandemic to 92.3 per cent in 2024 from 82.1 per cent in 2017 due to fiscal stimulus by countries to mitigate the Covid shock. Global manufacturing has slowed since 2022 amid greater policy uncertainties and de-globalization.

Crises, protectionist policies and regional realignments are disrupting the world economy, undermining the stability and predictability of global investment flows.

Of the total foreign exchange reserves, the share of US dollars has come down to around 57.8 per cent in 2024 against 65.2 per cent in 2014. Central banks have steadily increased their investment in gold to hedge against the uncertainty. Central Banks of China, India, Russia and Japan have increased their gold holdings over the past few years.