A stress test for global trade

IN THE past six months, the global trading system has been jolted by the US’ unilateral actions. More than a few people have proclaimed the demise of the World Trade Organization (WTO). Such obituaries of the multilateral trading system have appeared since at least the 1980s but the ongoing disruptions are unprecedented in speed and scope, and have undeniably shaken confidence in open and predictable trade. World trade did collapse in the 1930s. So understanding where it may go from here requires a close look at the facts.

The WTO secretariat projected last month that global goods trade volumes would grow by 0.9 per cent this year. Though well below the 2.7 per cent projected before the new US tariffs, this is an improvement from the 0.2 per cent contraction predicted in April. With the recent agreements, US trade-weighted average tariffs have jumped from 2.4 per cent at the beginning of the year to 18.4 per cent.

Despite all this, the rest of the world has mostly continued to trade on normal terms, as businesses scramble to recalibrate. WTO analysis suggests that roughly 72 per cent of global goods trade is still operating on basic “most favoured nation” tariff terms. This is down from 80 per cent at the beginning of the year, and may dip further. But the system is showing resilience. WTO members have, at least thus far, avoided what could have been a bruising retaliatory trade war with the US. And they have generally refrained from escalating restrictions on each other’s goods and services, as happened in the 1930s.