Has global trade peaked?

I have recently updated my trade databases as I write a book chapter on the topic. I am also curious about the dramatic growth in freight charges over the last 12 months in international shipping. I have a friend who runs a business importing cement who is now paying 5 times the freight charges now than he was a year ago. Why that would be the case is an interesting question. I have previously written about the way that the neoliberal ideology became conflated with the trends towards globalisation in supply chains. Globalisation, was then weaponised with the ‘free market’ ideology, which undermined key aspects of the benefits of trade, particularly for poorer nations. The ‘free market’ mantra became code for increasing the rate of surplus extraction from these nations by financial interests in the richer nations – a sort of more sophisticated version of the way colonialism sucked wealth from the colonies to the benefit of the metropolitan economies. But in recent years (since about 2007), a fundamental shift in the relationship between trade volumes and income growth (a relationship that is often used as a proxy for the pace of globalisation) has occurred. Some think this indicates that peak trade has been reached. There are good reasons for thinking that to be the case.

I wrote about these issues in these blog posts among others:

1. The Left confuses globalisation with neo-liberalism and gets lost (April 27, 2016).

2. Globalisation and currency arrangements (January 11, 2016).

3. Free flows of capital do not increase output but do increase inequality (December 10, 2019).

4. The case against free trade – Part 4 (November 24, 2016).

5. The case against free trade – Part 3 (November 22, 2016).

6. The case against free trade – Part 2 (November 8, 2016).

7. The case against free trade – Part 1 (October 27, 2016).

8. The co-option of government by transnational organisations (January 13, 2016).

Globalisation trends

In my earlier writing (above) I argued that globalisation, which involves the spread of sophisticated global supply chains that provide a diversity of products at relatively low prices (if you have an income) is not the generic problem.

Rather, the problem is neoliberalism.

By that I mean the way in which the neoliberal ideology has shaped and restricted the globalisation process.

Globalisation is a multi-faceted development that spatially reorganises economic activity (if allowed) and has, to some extent been part of social developments for as long as we have records.

The fact that I write these blog posts which are read daily by people all around the globe is an aspect of globalisation.

The Left who talk about cosmopolitanism are really talking about a facet of globalisation.

The search for new markets and new ways of organising production is not new and has been going on for centuries.

The important point is that the way that these global developments manifest is, in now small part, influenced by the political developments that accompany them in time.

The problem is that neoliberals convinced the political class that the globalisation process had undermined the power of the state.

Ironically, that lie began being propagated around the same time that the Bretton Woods system broke down and most nations adopted the fiat monetary system, which meant that governments became financially unconstrained and floated their exchange rates, and, central banks were freed from engaging in official foreign exchange market intervention.

The two developments are intrinsically linked.

The shift in ideology away from a full employment commitment via the fiscal power of the state towards the deep opposition from Monetarism to the state using fiscal policy to regulate aggregate spending saw the globalisation process as a way of furthering the interests of capital and undermining the interests of workers.

We first saw attacks on the use of capital controls so that the financial sector could exploit new markets in their quest to transfer resources from the poorer nations to the rich.

Industrial capital also demanded the abolition of tariffs unless they were to their advantage.

And then we saw the wave of privatisations to shift wealth and income-generating capacity to the private elites. That was accompanied by the destruction of national state monopolies in the big essential industries and user-pays principles for other state-provision.

In more recent times, the so-called ‘free trade’ agrements have embedded investor dispute mechanisms as the ultimate attack on democratic volition, such that corporations can now challenge national laws that impinge on their profits, even if those laws benefit the population at large.

Progressives, in my view, have conflated these two trends – globalisation and neoliberalism – as if they were the one process.

Yet, global supply chain proliferation was underway during the full employment era after the Second World War without the alignment with these pernicious neoliberal aspects.

Trade has also been weaponised by multilateral organisations such as the World Bank and the IMF as the preferred blueprint for lesser development countries to emerge as more advanced nations.

I have written before about how the export-led model of development has been a disaster for many, if not most, of the poorer nations.

I wrote about that recently in this blog post – British Labour remains unelectable – Part 104 (July 14, 2021).

More recently, especially with COVID, nations are realising that a reliance on global supply chains for essential products can leave a nation vulnerable and there is a move towards more import substitution and restoring domestic manufacturing capacity.

What is the data saying?

Peak Trade

I saw a graph the other day on a US news service, which contained no explanation, although I immediately knew the dataset that was being used.

It was the data published by the Dutch Central Planning Bureau for Economic Policy Analysis, which is a modelling agency that provides advice to the Dutch policy makers.

The CPB publish a monthly – World Trade Monitor – which provides statistics for trade volumes and industrial production for various levels of aggregation from the World down to regional groupings (Advanced and Emerging economies) and individual countries (US, UK, Japan, and China).

The most recent update was published on July 20, 2021.

Trade flows do not include data for services as the data is compiled from “montly Customs data and include goods trade only”.

The industrial production data is compiled for each country and in some cases on manufacturing sector data is used.

So in the World Trade Monitor:

… ‘trade’ is trade in goods (also referred to as ‘merchandise trade’). ‘Production’ is industrial production, that is: value added in mining, manufacturing, and utilities (also referred to as ‘industry excluding construction’).

The CPB define trade volume in in constant dollar prices, that is, in real terms – actual volumes.

I have been tracking this data for many years now because it provides a proxy measure for the extent of globalisation.


The ratio of trade volume to industrial production tells us whether trade volumes are growing faster or slower than production levels.

Here is the graph from the start of the series on January 1991 to March 2021 (latest) expressed as a percentage (world trade volume of industrial production).

Other data sources tell us, when combined with the World Trade Monitor data, that international trade volumes have grown more quickly that global production for the last 50 to 60 years.

That describes the unfolding globalisation process, driven by better technologies, improved freight systems, and more recently, the emergence of China as a major player in the world economy.

The graph shows how quickly the ratio of trade volumes to industrial production rose from the early 1990s – that trend, actually began in the 1980s.

There were several major drivers:

1. The emergence of China and its membership of the World Trade Organisation.

2. The rise of cross-border supply chains as advanced nations outsourced aspects of their product creation to other nations.

3. The decline of the Soviet system and the fall of the Berlin Wall, which opened up Eastern Europe.

What the graph shows, however, that this process came to a stop in 2007 and after a dip during the GFC, the ratio has now flat-lined.

What does that mean?

Trade is now in decline.

The OECD regularly publish international trade statistics updates and their report for the first quarter 2015 – International trade slows sharply in first quarter of 2015 – told us that:

Against a backdrop of an appreciating US dollar and declining oil prices, total merchandise trade, in current US dollars, for G7 and BRIICS economies fell sharply in the first quarter of 2015, with (seasonally adjusted) exports and imports declining by 7.1% and 9.5% respectively compared to the previous quarter.

The question that has been asked is whether we have reached ‘peak trade’.

This World Economic Forum article – Has global trade peaked? (June 26, 2015) – argued that:

Presently, trade is not a driver of growth for either industrialised or emerging economies.

It recognises that there has been very little shift in the trade to production ratio since around 2008 – although it was actually earlier in 2007 that the ratio started to flatten.

To answer that question, we need to work out why the ratio has flattened out.

A clue might be in thinking about the factors that drove the rapid expansion of trade flow volumes relative to production.

First, it is likely that the period of austerity after the GFC and the suppression of household consumption and business investment during the very weak recovery period, especially in Europe, has been an issue.

The recovery from the GFC was indeed very slow in many parts of the world, particularly the UK and the Eurozone.

But in the lead up to the Pandemic, growth was stronger so the continued flat nature of the graph in recent years might suggest other factors are influencing the outcome.

In this study – The Global Trade Slowdown: A New Normal? (published June 24, 2015) – a number of ‘structural factors’ are considered.

The most obvious explanation for the rapid rise in the ratio and the flattening is China.

China became a member of the World Trade Organisation on December 11, 2001, which gave it much greater access tp world export markets and opened its domestic market for capital inflow and imports.

That development really expanded world trade volumes but the assertion is that the process of integrating China into the world economy has now come to an end and trade volumes will now grow in line with income growth.

Further, the Chinese govwernment has clearly shifted from an ‘export-led’ approach to increasing the growth contribution of domestic demand.

Another fact has been the integration of Central and Eastern Europe with the fall of the Soviet system. This had a similar impact on world trade as the rise of China.

A factor not considered in the study cited above is the impacts of the pandemic on the self-sufficiency and self-reliance movements.

It is quite clear that China has already (pre-pandemic) been investing in its own domestic capacity to continue growth without a reliance on exports and imported technology.

In 2020, President Xi Jinping announced that China would increasingly move to “technology self-reliance” which has led to trade tensions with the US and other nations (for example, the semiconductor issue).

More generally, however, the pandemic has exposed vulnerabilities in global supply chains, particularly in medical products and equipment.

I expect nations will increasingly seek to ‘go local’ and forget all the free trade stuff even if it means that states will have to invest more in manufacturing processes.

China, anyway, will start to lose its competitive advantage (via lower wages and coastal transport costs) as its development process moves inland and the middle-class start demanding better wages and conditions.


This was just part of some exploration I am involved in as I try to come to terms with the latest trends in globalisation.

I doubt, however, we have reached peak trade.

There is massive potential in the poorer nations. Whether that will be realised is yet to be determined.

And what impact climate change will have on the issue remains to be seen.

That is enough for today!

(c) Copyright 2021 William Mitchell. All Rights Reserved.

This Post Has 12 Comments

  1. Very interesting Bill.

    When I was having these types of debate with Indy think tanks who said an independent Scotland should choose an export their way to growth model. I could never understand their argument. Especially when at the same time they supported a job guarentee. It just never made any sense what they were saying.

    1. Why choose to use your skills and real resources just in order to horde excess foreign currency that you would never use ? Especially when the real resources could be used for other things.

    2. Why choose to send your real resources away in a world with climate change ? When you never know when you might need them yourselves.

    3. This was before the virus happened and highlighted the importance of import substitution in some areas. When you would need your own skills and real resources for that.

    Their answer was always ” open borders” steal skills from poorer countries that need those skills and bring them to Scotland. Which I said was a crazy policy. And if you are determined to do both because you have some nervous tic that says you must do both. Then surely improving productivity is the answer by reducing the pension age along with introducing the job guarentee. If you are going to export then the large exporters should be state owned to control the price level and use the least amount of real resources and skills as possible.

    Even before the virus because of climate change and how bad it could get. I always believed trade was going to come full circle and that HUGE trade surpluses would turn into a more balanced trade approach with capital controls as real resources became scarce.

    If the belief is you have to export to get the currency you need to import. Which is questionable the way banks are set up today. Then how does that theory hold in the real world when you introduce a job guarentee within your own borders and exporters are standing in line ready to sell you the imports you need and willing to discount their own currency to do so.

    I never understood the reason why think tanks that know MMT wanted Scotland to export it’s way to growth. Not choose a more balanced trade policy. Why on earth they wanted open borders to improve productivity. It made no sense to me.


    I’ve just finished reading Michael Hudson’s paper on the fiscal flows study of US balance of payments from 1960- 1968 last week.

    How accurate do you think the trade figures are today ?

    In Michael’s paper he showed how some of the figures for the oil industry and the US military and the aid budgets were manipulated and counted in the trade figures. Do you think the trade figures are more accurate today or have the corporations just copied and enhanced even more the manipulation that Michael highlighted within oil and defence in the 60’s ?

    I tend to believe because of both neoliberalism and globalism. Corporations are using these manipulation techniques Michael highlighted. Instead of seeing it as a warning have now used that knowledge to manipulate the trade figures even more across all industries. You just have to look at Ireland who don’t even know what their GDP figure is.

  2. Has there been a move towards increasing tariffs throughout the world? The US of course since Trump but not sure if these have been introduce elsewhere.

  3. This sentence kind of threw me for a loop. “The problem is that neoliberals convinced the political class that the globalisation process had undermined the power of the state.” You then went on to itemize the way globalization had, in fact, undermined the power of the state. So I’m missing a nuance, I suspect, caused by the sentence and where you put that sentence in your article. Anyway, I think I do understand the article’s message.

  4. “Progressives, in my view, have conflated these two trends – globalisation and neoliberalism – as if they were the one process.”

    They certainly could be viewed that way. Both provided the means that were well used to apply downward pressure on the overall price of labor, something that has always been a goal of corporations in their ongoing efforts to maximize profits by means that don’t risk any capital the way being more innovative and increasing productivity does.
    The question is why do politicians in formerly advanced and supposed democratic nations continuously support this undermining of the labor position, ie the majority of their constituents?

  5. “I have a friend who runs a business importing cement who is now paying 5 times the freight charges now than he was a year ago. Why that would be the case is an interesting question.”
    Seems there’s a shortage of crew and containers. Perhaps some clues here:
    Global Shipping Crisis Far Worse Than Imagined, F. William Engdahl, NEO, 21/07/21
    The global COVID lockdowns are having far more serious long-term impacts than most are aware. The world economy is a dynamic, highly complex interconnected web that is not able to turn off and on like a flick of a light switch.

  6. @ J Christensen, re:’why do politicians in formerly advanced and supposed democratic nations continuously support this undermining of the labor position, ie the majority of their constituents?’ I would say in answer, that our governments are a long way from being of, by and for the people. In the UK, the Cons have been the main party of government since 1918 (when all men over 21 and all women over 30 got the vote), ably kept in power by the pressure of the media, workplace and class structure and deference, and we have a Labour Party that has been subverted and deradicalised to such an extent that you are likely to get thrown out of the party for any moral or progressive position.

  7. With all the verbal threats to China what interests me is it has a population that can support itself and it doesn’t need to export OR import. Now if China said to hell with the West and made such a decision that really would put the cat among the pigeons; just imagine the inflation that would occur in the West. Or if it said, we will only deal with the East!! Globalisation can be used as a weapon so in my view we shouldn’t put all our eggs in the globalisation basket.

  8. @ Patricia Smith You’re right that China can support itself, pending climate disaster, with thanks to Yuan Longping, the ‘father of hybrid rice’. What do you do then with the millions no longer needed on the land? Of course, western societies dealt with this previously, partly through immigration, but not on quite such a vast scale. China has dealt with it by internal migration and employment producing for themselves and the rest of the world + a vast number of army/security/street sweepers etc. It has an aging population, so one would have thought that some of the working age population could be redeployed into services for the elderly, but they are presently desperately trying to boost future workforce numbers. One things for sure, any redeployment and reverse population movement away from the export cities will be a vast and difficult project.

  9. An obvious problem with free trade was that it promised workers cheap fridges or undies which you might buy once a decade or once a year, yet you need a solid pay packet once a week, and exporting industries from developed countries undermined jobs and wages.

  10. Hi Bill,

    Re: inquiry regarding high container shipping costs 2021 versus actual demand increase of 3% from 2019/2020 lows – I think this article from Freightwaves answers this, although, as ever, its a complex area with multiple inputs. Also, as scrap prices have soared, quite a number of operators scrapped ships earlier than usual as they made more profit from scrap than from carrying freight: https://www.freightwaves.com/news/global-demand-isnt-booming-so-why-are-shipping-rates-this-high

  11. “In 2020, President Xi Jinping announced that China would increasingly move to “technology self-reliance” which has led to trade tensions with the US and other nations (for example, the semiconductor issue)”, Bill.

    This is one of the examples mentioned by bill in his article that is being pursued in their latest 5 years plan.

    Last week, I happed to have a chance to talk to a group of academics from Beijing (via zoom) on the topic of global leadership.

    There, I remembered that I learn (in one of our discussions), that in this aspect, mentioned by bill alone, they already have and will continue to improve on things such as:
    High speed rails and train technology,
    Space transportation and station technology,
    6G, mobile devices and digital technology,
    Smart cities technology,
    Electric vehicles, batteries and refill station technology,
    Life, health, food, environment and vaccine technology, and etc. with the expanded basic education years and R&D funding for the above projects (among other in that 5 years framework).

    They said that these are done to support and expand the domestic economy (to 75%) while still can engaging in the global economy (to 25%).

    With a large population in China and in Asia, they know the demands are mostly here and they could easily turn their attention more to this region (like Patricia Smith has observed).

    But I think they won’t, they want to live in peace and harmony with other nations also from what I learned from our discussions.

    The only problem, from our discussion and my own perception, is that of the “ideology”,

    Well, I better stop here, as that is what I did during our conversations by switching to a milder topic like the cross-cultural difference and diversity management, to keep calm and remain as friends.

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