Is Trade No Longer the Engine of Global Economic Growth?

1. The Role of Trade as a Growth Engine in the Past

From the late 20th century to the early 21st century, trade expansion was considered a key driver of global economic growth. As globalization progressed, trade barriers were lowered, and supply chains expanded, allowing businesses to focus on low-cost production and market expansion. This trend provided growth opportunities for both developed and emerging economies, fostering economic cooperation and mutual development.
For instance, reports from the IMF and World Bank indicate that from the 1990s to the mid-2000s, global trade grew faster than global GDP, playing a crucial role in driving economic growth.

2. The Rise of Protectionism and the Slowdown of Trade as an Engine

However, after the 2008 global financial crisis, protectionism began to re-emerge. Major economies, including the United States, started to impose trade barriers to address trade deficits and protect domestic industries, disrupting global trade flows.
Notably, the tariffs imposed during the Trump administration and the U.S.-China trade war transformed into an economic power struggle beyond mere protectionism. IMF Managing Director Kristalina Georgieva has warned that such trade conflicts weaken global trade, increase uncertainty for economic actors, reduce investment, and ultimately slow economic growth.

3. Why Trade Is Losing Its Role as a Growth Driver

Restructuring of Global Supply Chains

Following the pandemic, supply chain instability has prompted businesses to reconsider reshoring or diversifying production locations. As a result, the era of unlimited expansion into low-cost production sites is becoming less feasible, and rapid trade growth is increasingly difficult to achieve.

Technological Change and Digitalization

Trade patterns are shifting away from a manufacturing-centered model toward digital services and intellectual property-based trade. This new trade paradigm is difficult to regulate using traditional tariffs or trade barriers, and policy coordination among nations remains challenging.

New Industrial Policies in Advanced Economies

The United States and the European Union are strengthening policies to boost domestic competitiveness in high-tech industries through subsidies and tax incentives, effectively creating ‘policy-driven trade barriers.’ Key examples include the U.S. Inflation Reduction Act (IRA) and the CHIPS Act, which are reshaping traditional trade rules.

4. Trade Challenges in an Era of High Debt and Low Growth

The global economy faces dual challenges: high debt ratios and slow economic growth. Countries with limited fiscal capacity may be inclined to resort to protectionism to safeguard domestic industries, which could further slow trade and exacerbate economic stagnation.

5. The Future of Trade: Is It Over, or Is It Entering a New Phase?

Rise of Regionalism

Regional trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP) are gaining traction. Unlike previous global free trade agreements, trade is now becoming more regionally fragmented.

Expansion of Digital and Service Trade

E-commerce and remote services are emerging as new pillars of trade. However, nations may introduce regulations and policies to protect their domestic platforms and industries, potentially leading to new trade barriers.

Integration with Sustainability and ESG Issues

Global investors and consumers are increasingly focused on environmental, social, and governance (ESG) considerations, particularly regarding carbon emissions and ethical supply chains. As a result, trade is shifting from mere volume expansion to creating value through sustainable practices.

6. Policy Recommendations and Strategic Responses

• Mitigating Trade Conflicts: While short-term protectionist measures may shield domestic industries, long-term trade restrictions could reduce global trade and complicate supply chains, negatively impacting national economies. Governments should engage in multilateral cooperation to resolve disputes and establish fair competition principles.
• Revising Trade Norms and Agreements: New trade frameworks must address digital trade, intellectual property rights, environmental and labor standards, and other emerging issues.
• Enhancing Productivity and Industrial Restructuring: Even if trade no longer serves as a primary growth engine, businesses can secure competitive advantages through innovation and productivity improvements. Investments in technology and infrastructure are essential for maintaining an edge in future growth sectors.

Conclusion

The question, "Is the era of trade-driven growth over?" cannot be answered with a definitive "yes." However, it is clear that the traditional trade-centered growth paradigm is evolving. The rise of protectionism, competition in advanced technologies, and ESG-related demands are reshaping trade dynamics.
Rather than relying solely on protectionism, countries must address debt issues, implement structural reforms, and foster digital and green industries to adapt to the new trade paradigm. While trade may no longer act as a singular "growth engine" driving the global economy, it remains a vital tool for economic potential when coupled with well-designed policies and international cooperation.