International trade is declining.
Since 2012 global trade in goods and services has dropped to less than half the rate of the previous 30 years. Trade volume in 2016 slowed to 1.7%, the weakest expansion since the financial crisis, according to the World Trade Organization. WTO’s forecast for 2017 was recently lowered to between 1.8% and 3.1%, down from a previous estimate of 3.6% due to the falling volume of merchandise.
Historically strong trade growth has signaled strong economic growth. Rising imports are associated with faster overall growth in developed countries. Trade has provided a way for developing and emerging economies to grow quickly. Global trade has typically grown at 1.5 times the rate of global GDP (global domestic product). It now appears that 2016 will be the first time in 15 years that the ratio between trade growth and world GDP will fall below 1:1.
Sluggish consumer purchasing bears much of the blame. Demand for China’s exports has cooled. Japan’s stimulus has stalled. The US is still slowly rebounding after the financial meltdown in 2008-09. Europe is unsettled and facing a possible dissolution of the world’s largest free trade zone. Russia’s economy is slowed by sanctions, the Middle East by tragedy. Brazil continues to experience political and agricultural disruptions and India’s economy was severely damaged by the self-inflected wound of demonitization.
These disruptions, though painful, are cyclic. In the past buoyant optimism powered global trade without regard to consequences. In the past 18 months that optimism has vanished. This has given rise to the notion that trade is inherently “bad.” It is not, so long as treaties achieve a “win-win” for parties involved.
“While the benefits of trade are clear, it is also clear that they need to be shared more widely,” writes Roberto Azevêdo, WTO’s director-general. “We should seek to build a more inclusive trading system that goes further to support poorer countries to take part and benefit, as well as entrepreneurs, small companies, and marginalized groups in all economies. This is a moment to heed the lessons of history and re-commit to openness in trade, which can help to spur economic growth.”
The growing backlash against globalization that threatens open trade, is a troubling development that would greatly impact the tea and coffee industry. Coffee and tea are examples of commodities that support poor countries and encourage greater understanding of cultural differences. Coffee and tea professionals travel widely and present consumers with important insights into the effort and pride producers display in growing and processing their harvest.
No one should blindly rail against trade and initiate costly tariff battles. It is misguided to unravel trade agreements and treaties that have lowered tariffs and barriers to trade. Enacting protectionist measures will set back decades of progress.
But open trading systems that result in job creation and promote economic development must also take into consideration social injustice and displaced workers. It is important to recognize that food and agricultural products should not fall under the same rules as TV sets, furniture, steel, and automobiles.
How the trade rules are written really does matter. Constructive discussion to rectify imbalances is the remedy. Free trade must be fair trade.