Baltic Dry Index, which measures the price of moving a major raw materials by sea, has fallen to an all-time low. Moreover, China has announced last year that, since the opening up its market to the world in late 1970s, its exports has declined on an annual basis. Energy prices such as oil and iron has fallen stiffly in a recent decade. All this factors might imply that global trade is decreasing. The obvious question is `Why?`.
When the global trade decreased in 2009, the clear reason was the financial crisis, and the contraction of GDP. However, last year the Global GDP has increased by 3.1%. Additionally, the transportation costs have decreased due to the oil price decline, and there was no significant increase in trade barriers. The only conclusion to the trade decline is that the once-irresistible forces of globalisation are losing steam. The recent trend in China is giving us a view. China has changed the global trade by being a leading trade economy. However, recently the economy lost both export and import values, owing to the strong price decline of commodities.
In fact, the commodity prices are very important factors in assessing global trade. In recent decades, the prices were high and they drove increased trade, even to the point that the value share of trade to the GDP rose. Hence, it fueled the progress of globalisation. However, starting in 2012, global commodity prices fell and brought the trade down with itself.
You might say, if the prices of commodity goes down it should benefit the trade because the low cost should fuel more supply. However, the demand of oil-depended economies for those goods will decrease as the low prices hit them hard. Another relation between commodity prices and trade is that, when the commodity prices were high, economies had to export more to cover the costs of production. Therefore, the decrease of the commodity prices bring down the incentive to export more.
When something is widely hyped, there is nearly always a real reason for it. Most economies are more open today than they were a generation ago. But it is now becoming clear that the perception that globalization is some overwhelming and inexorable force largely reflected the side effects of the last decade’s commodity boom. If prices remain low, as seems likely, the next decade might well see global trade stagnate, as the trade pattern “rebalances” from emerging economies to the established industrial powers. -Daniel Gros
China’s rebalancing strategy, increasing regional blocs, the escalation of US Crude supply, low commodity prices, and some other factors foster the stagnation of international trade, hence the globalisation (from an economic point of view). Nonetheless, it doesn’t mean that globalisation era will be over in a recent future. Political ambitions of hegemony-states will assist both the globalisation and international trade.