The following is a revised version of the Free Lunch newsletter in a third-person format, maintaining a neutral and professional tone and ensuring clarity while preserving the original context:
On April 2, a day referred to by former President Donald Trump as “liberation day,” the implications of the United States’ “reciprocal” tariff plan will become evident to its trading partners. Concerns about a deglobalising world are mounting, fueled by the slowing global goods trade and the rise of national security doctrines. There is apprehension that these US tariffs could potentially jeopardize globalisation.
Efforts have been made to present counter-arguments to this notion. The significance of the US in global trade is considerable, given its status as the world’s largest economy. However, its share of global goods imports has decreased from nearly 20% two decades ago to just 13%. Simon Evenett, a professor at the IMD Business School, conducted a thought experiment revealing that if the US ceased all goods imports, many trading partners could recover their losses within a year, and most would recuperate within five years, provided they continued their current export growth rates to other markets.
Other major contributors to global trade growth include Europe and China. According to Mallika Sachdeva, a strategist at Deutsche Bank Research, both regions are likely to continue supporting free trade. China remains focused on securing raw material inputs and global markets to support its growth strategy, advocating for resistance against unilateralism as US protectionism intensifies.
Despite the prominence of the US-China trade dynamic, their direct merchandise trade accounts for only about 2.6% of global trade. The European Union plays a more influential role in driving global trade, and this role is expected to expand. The EU is anticipated to enhance intra-European trade and collaboration with China in response to US protectionist policies. Beyond Europe and China, regions such as India, Southeast Asia, East Asia, and the Middle East are projected to support global trade growth until 2029.
The pursuit of national supply chain resilience since the Covid-19 pandemic and Ukraine conflict remains limited as few governments intend to emulate US protectionism. Scott Lincicome, vice president at the Cato Institute, noted that as the US recedes from the global stage, other nations are likely to intensify efforts to form trade deals to mitigate potential losses. Ongoing bilateral and multilateral trade discussions include recent agreements between the EU and Mercosur, and Australia and the UAE, with others in progress involving the EU, Gulf Cooperation Council, UK, and India.
Steven Altman, a senior research scholar at the NYU Stern School of Business, indicates that even a comprehensive implementation of US tariffs and retaliatory measures by other nations could reduce global goods trade volumes by up to 10% compared to baseline growth. Still, global trade would likely grow by about 5% from 2024 to 2029, suggesting that US tariffs might slow but not reverse trade growth.
Historically, global merchandise trade has varied in significance. PGIM, an asset management firm, argues that globalisation is entering a “dual-track era,” with deglobalisation affecting sectors with national security considerations, while there is continued globalisation for goods and services encompassing 75% of global GDP.
The historical ebb and flow of the importance of trade in the global economy correlate with geopolitical cycles and economic realities, leading to rising goods trade over time. Efficiency gains and profit motives typically overpower protectionist pressures, as depicted by the inverse relationship between the KOF Globalisation Index and inflation in advanced economies.
It’s anticipated that once governments solidify capabilities in critical industries, economic rationale will resurface. Protectionism tends to be cyclical, while comparative advantage pushes towards expanded trade. Parag Khanna, a global strategy advisor, suggests that despite Trump’s tariffs, global trade’s long-term trajectory is unlikely to veer significantly off course.
In the short term, there is potential that President Trump’s policies may be reshaped by political cycles and public priorities, such as inflation, rather than globalisation concerns, as shown by a Cato Institute and YouGov survey.
In conclusion, the broader globalisation narrative spans more than goods trade, with services and data flows playing increasingly critical roles. Services trade, notably in business, finance, and technology, has outpaced goods trade growth since 1990. McKinsey’s analysis suggests that technological advancements might impact global goods trade, but persistent economic drivers largely fuel globalisation’s trajectory.
Overall, Trump’s tariffs are not anticipated to result in sustained deglobalisation, with international flows across trade and other areas showing growth even as deglobalisation discourse intensifies. Despite the risks associated with protectionism, the long-term momentum for globalisation tends to prevail.
