Is International Trade on the Decline or the Rise? Exploring the Current State of Global Trade

In a world where borders shrink with every passing year, the concept of international trade has evolved far beyond the mere exchange of goods and services. International trade has now become the backbone of the interconnected global economy. This is greatly beneficial in giving individual economies access to a diverse range of resources and markets, but it also magnifies the vulnerability of nations to global shocks. For example, both the 2008 Global Financial Crisis and the more recent COVID-19 Pandemic have exposed the fragility of economic interconnectivity. Fast forward to 2024, technological advancements like artificial intelligence and the Internet of Things (IoT) are promoting even more trade. These innovations are reshaping global trade, creating both opportunities for higher trade but challenges in governance and regulation. As the world navigates through these shifting tides, let's have a look at where international trade currently stands.

Trade, the lifeblood of the global economy, refers to the sale of goods and services across national borders. Fueled by the forces of globalisation, international trade has surged dramatically, increasing from US$8.5 trillion in 1990 to US$31.55 trillion by 2023. However, according to the World Trade Organisation's Global Trade Outlook and Statistics (April 2024), world merchandise trade saw a 5% decline in 2023, dropping to US$24.01 trillion. This was on the back of increasing commodity prices, slowdown in China's demand for iron ore, and geopolitical issues stemming from tensions and conflicts between countries. Despite this dip, a strong 9% rise in commercial services trade, reaching US$7.54 trillion, cushioned the blow. Over the years, world trade has shown resilience in the face of economic shocks, with merchandise trade volumes climbing by 6.3% and commercial services soaring by 21% from 2019 to 2023. This strong growth in services are on the back of stronger digitalisation and technological advancements that boost sectors like IT, financial services, consulting, education and entertainment. Further, a global shift towards knowledge economies, an increased trend of outsourcing and offshoring, and finally a less dependence on vulnerable global supply chains all further contribute to the growing trend towards the trade in services.

The term ‘poly-crises,’ coined by the WTO, reflects the combination of supply chain disruptions, trade policy uncertainties, and geopolitical rivalries that have shaken the contemporary global trade system. Yet, despite these challenges, compounded by inflation spikes driven by rising commodity prices due to the war in Ukraine, world trade has remained resilient. Nonetheless, the ripple effects of these tensions were felt in GDP growth, with World Real GDP at market exchange rates slowing from 3.1% in 2022 to 2.7% in 2023.

Looking ahead, the WTO remains optimistic, forecasting a 2.6% increase in world merchandise trade volume in 2024, followed by 3.3% in 2025. This correlates with projected global GDP growth rates of 2.6% and 2.7% for the same period. Yet, this positive outlook remains precarious, as global policy uncertainty and ongoing geopolitical strife could limit the scope of trade recovery. The Ukraine-Russia conflict continues to stir up price volatility in food and energy, stoking inflation fears and threatening the stability of international trade.

At the same time, central banks in advanced economies face the difficult task of managing interest rate cuts—any miscalculation could tip the scale, leading to financial volatility. The resilience of global trade will also be tested by two critical shipping routes—the Panama Canal and the Suez Canal.

1. Panama Canal: Handling 6% of global trade, with over 70% of shipping routes relying on it, the Panama Canal has been operating at partial capacity due to freshwater shortages, significantly slowing global shipping operations.

2. Suez Canal: Responsible for 12% of global trade and 33% of container traffic between Asia and Europe, the Suez Canal has faced severe disruptions due to the Red Sea Crisis. The Iran-backed Houthi movement’s missile and drone strikes have reduced traffic through the canal to 36 vessels per day, down from 72 in 2023. As ships are forced to reroute through the Cape of Good Hope, this adds 10 days to the Asia-Europe journey, driving up fuel costs, shipping rates, and delivery times, raising the expectations for another global inflationary shock.

As the world navigates these turbulent waters, it becomes clear that while trade has proven its resilience, it remains at the mercy of global forces far beyond mere economic calculations.