One of the data points I’ve been warning about for sometime now is the relationship between global growth and global trade.
More specifically, I’ve noted that global trade is now growing at a slower pace than global growth which is itself pretty damn sluggish.
This is a rather inauspicious dynamic with which to cope given the anti-globalization, anti-trade rhetoric that’s accompanied the rise of populism from the US to Europe. Here’s what this looks like graphically:
(Chart: Deutsche Bank)
And here’s some color from Deutsche:
Given this combination of structural fatigue and political protectionism, where is globalization headed? Drawing a parallel to the 1920s inter-war period is not intended to argue for a repetition of history but to highlight how a sequencing of events led to the unraveling of global trade. In 1928, on the eve of the Great Depression, Herbert Hoover ran on a platform that promised higher tariffs on agricultural products to America’s suffering farmers. Having won the presidency and a comfortable Republican majority in Congress, Hoover proceeded to pass, with the help of Republican senators, the Smoot-Hawley Act, which was signed into effect in 1930 and raised tariffs on more than 20,000 products to levels not seen before in US trade history. America’s major trading partners—Canada, France and Britain—were quick to retaliate by raising tariffs in turn, while Germany withdrew from trade altogether, championing autarky instead.7 Trade barriers were not limited to tariffs but also included import quotas and outright exchange controls, limiting the amount of currency that could leave countries. As a result, US trade halved within years, and global trade weakened even more, even if it continued at low levels within regional trading blocs such as the Commonwealth and the remnants of the Gold Bloc.8 The rise in protectionism served as an important catalyst to the global recession. Flows in capital and people further declined in the early 1930s as a wave of populist political movements spread through Europe. The Glass-Steagall Act of 1933 banned US banks from investment business, and capital outflows diminished to negligible amounts in the following years.
You know what they say about those who refuse to learn from the past…