Have We Reached Peak Globalization?

After decades of growth for world trade, global tourism and international cooperation, globalization hit a couple of roadblocks in recent years, as the reemergence of nationalism and protectionism have undone some of the progress made in the past. After global trade growth stagnated in the wake of the financial crisis and during the first Trump administration, when trade tensions between the United States and China first came to the boil, the Covid-19 pandemic resulted in a steep decline in global trade, which, measured as a share of global GDP, dropped to its lowest level since 2003 in 2020.

Despite the pandemic serving as a reminder of the vulnerabilities of global supply chains, world trade bounced back promptly, with the global trade-to-GDP ratio peaking at 62.8 percent in 2022 before dropping back to 58.5 percent in 2023, according to the World Bank. With Trump's trade war 2.0 threatening to upend the low-tariff era and nationalistic voices gaining strength in many parts of the world, we may well have seen the peak of globalization. The new tariffs and especially the uncertainty surrounding future trade policy could result in companies re-thinking their supply chains in an attempt to make them less vulnerable to global trade disruptions.

As it takes time to re-configure global supply chains and the blanket tariffs imposed by the U.S. could still turn out to be short-lived, it is yet unclear though how much of a lasting impact the current policy of the Trump administration will have on global trade in the long term.