The Future of Global Trade: Will Protectionism Increase

5th December 2022

Global trade currently faces headwinds. With growing protectionist policies and trade wars, how will international commerce evolve this year? This article evaluates the state of global trade and its economic implications.

Global trade is facing an uncertain future. After years of relative stability and liberalisation, the international trading landscape has been rocked by a surge in protectionist sentiment, with governments worldwide embracing policies designed to protect domestic industries. From tariffs to subsidies to outright trade wars, the direction of global commerce appears increasingly murky. For those of us who’ve been used to a world where goods and services flow across borders with relatively few restrictions, the prospect of a more fragmented global economy is unsettling. But what will the future of global trade actually look like? Will the rise of protectionism continue to dominate, or will markets adapt and thrive in new ways?

At the heart of this shift lies a growing scepticism about the benefits of free trade. For decades, global trade was seen as a rising tide that lifted all boats: countries opened up their markets, reduced tariffs, and integrated into global supply chains, resulting in significant economic growth. The World Trade Organization (WTO), established in 1995, symbolised this commitment to a more interconnected world, with member nations embracing the notion that liberalising trade would lead to mutual prosperity. In theory, free trade benefits all parties by promoting efficiency, reducing consumer prices, and creating opportunities for economic growth. It allowed countries to specialise in what they do best, while consumers gained access to a wider range of goods at lower costs.

However, in recent years, this optimistic view of global trade has faced significant challenges. The aftermath of the global financial crisis (2007–2008) left many nations grappling with stagnant wages, rising inequality, and a perception that the benefits of trade were not equally distributed. While multinational corporations and consumers in developed economies enjoyed the fruits of globalisation, many workers saw their jobs outsourced to low-wage countries, leading to a growing backlash against free trade. In the United States, the election of Donald Trump in 2016 marked a turning point, with the former president advocating for "America First" policies that emphasised protectionism over globalisation. His administration imposed tariffs on steel, aluminium, and Chinese imports, initiating a trade war that reverberated across the world.

In the UK, the Brexit vote in 2016 also reflected similar concerns about the effects of free trade. The Leave campaign capitalised on fears that the European Union’s trade policies were too restrictive, promising that the UK would "take back control" of its trade relationships. This sentiment was not isolated to the United States or the UK; many other countries have also adopted protectionist measures in recent years, including tariffs on foreign goods, export restrictions, and policies aimed at boosting domestic industries.

The global trade landscape is poised to undergo further shifts. The ongoing impact of the COVID-19 pandemic has highlighted the vulnerabilities of global supply chains, with disruptions in production and shipping affecting industries from electronics to food. Countries that were once heavily reliant on global trade now face the reality of potentially having to bring production back home or develop more localised supply chains. This is particularly true in sectors like healthcare, where countries are seeking to reduce dependence on foreign suppliers for essential goods like personal protective equipment and pharmaceuticals.

In many ways, the rise of protectionism in 2022 is a reflection of the tension between nationalism and globalism. On one hand, global trade and free markets have long been drivers of economic growth and prosperity. On the other hand, the uneven distribution of those benefits has created fertile ground for populist movements that argue for a more self-sufficient, protectionist approach. The idea of "making things at home" and prioritising domestic industries resonates with many voters who feel left behind by the forces of globalisation.

Yet, as history has shown, the consequences of protectionism are rarely as favourable as its advocates suggest. Protectionist policies, while appealing in the short term, can often lead to higher costs for consumers, reduced competition, and inefficiencies in domestic industries. The Smoot-Hawley Tariff Act of 1930, for example, which raised tariffs on thousands of imported goods in the United States, is widely considered to have worsened the Great Depression by triggering retaliatory tariffs from other countries and leading to a sharp decline in global trade. In a similar vein, trade wars between China and the United States, which escalated under President Trump, have disrupted global supply chains and increased costs for businesses and consumers alike.

One of the key challenges facing the global trade system is how to balance protectionism with the economic realities of interconnectedness. Even as countries pursue more inward-looking policies, the reality is that no nation exists in isolation in today’s global economy. Multinational corporations depend on supply chains that span the globe, and consumers expect access to goods from every corner of the world. Protectionist policies that stifle trade may benefit certain industries in the short run, but they are likely to cause long-term harm to economic growth and international cooperation.

In some ways, the current protectionist trend mirrors the political trajectory of Moby-Dick, Herman Melville’s tale of obsession and destruction. Captain Ahab, fixated on hunting the white whale, disregards the safety of his crew and the consequences of his actions in pursuit of a singular goal. Similarly, the pursuit of protectionism, while driven by a desire to protect national industries, can blind policymakers to the long-term risks of isolationism. Just as Ahab’s quest ends in disaster, so too could excessive protectionism endanger the very economies it seeks to defend.

Another literary example can be found in the works of Franz Kafka, particularly in The Trial. In this novel, the protagonist, Josef K., is caught in an incomprehensible and bureaucratic legal system that seems determined to trap him despite his best efforts. Similarly, protectionist measures can create an equally opaque and frustrating environment for global trade, where the goal of preserving domestic industries becomes so tangled in regulations and tariffs that it inhibits the very process it seeks to protect. The complexity and unpredictability of trade wars can lead to a situation where nations are ensnared by their own policies, unable to break free from the economic and diplomatic gridlock.

Despite these challenges, it is not all doom and gloom for global trade. There are signs that some countries are recognising the limitations of protectionism and are seeking new ways to promote cooperation and growth. The European Union, for example, has been exploring new trade deals with countries in Asia and Africa, while China, despite its trade tensions with the United States, continues to expand its Belt and Road Initiative, fostering deeper trade ties with countries across the globe. The rise of regional trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also demonstrates that there are opportunities for nations to cooperate outside of traditional global institutions.

In conclusion, the future of global trade will likely be shaped by a mix of protectionist measures and ongoing efforts at international cooperation. While protectionism may continue to rise as governments seek to secure their own economic interests, the reality of a globalised world means that nations will remain interconnected in ways that make complete isolation impossible. The challenges posed by protectionism, supply chain disruptions, and trade wars will need to be carefully navigated if we are to avoid repeating the mistakes of the past. As we enter this uncertain phase of global trade, it is essential that policymakers remember the lessons of history and recognise the importance of balancing national interests with the long-term benefits of open markets and international collaboration.