THE ECONOMIST: Global trade

Trade is essential to prosperity, and recent projections indicate that it’s likely to rise significantly in the future. Long-term economic growth in any area is not achieved by swapping things with fellow residents, but rather by what a community, state, or nation makes and sells outside their areas that brings in new resources. As I recently discussed, US exports are growing, with Texas leading the way. It’s one of the primary reasons that the domestic economy has remained resilient through myriad recent challenges.

The World Trade Organization (WTO) is currently projecting a 2.6% increase in global trade this year, followed by a 3.3% increase in 2025. This outlook is particularly good news after the unexpectedly large drop in 2023 of -1.2%. The decline in 2023 would have been even more pronounced if not for the strong performance in commercial services trade, which was up 9% to more than $7.5 trillion, boosted by international travel and digitally delivered services. Merchandise trade dropped in 2023 by 5% to $24.0 trillion, with part of the decline due to falling prices for some commodities (such as oil and gas). Fortunately, things are looking up.

There are several reasons to be bullish on the future path of global trade. One major factor is that inflation is down in many parts of the world, and lower rates of price increase allow real incomes to grow and, thus, people to buy more stuff. Another reason is that world economic growth is expected to be relatively strong. Trade has been remarkably robust, bouncing back from the pandemic within a year despite notable supply chain issues. Furthermore, commercial services are adding a new dimension to prospects, particularly with the expanded opportunities that AI is bringing to the table.

On the downside, obviously, is geopolitical tension. The conflicts in the Middle East can have a negative effect on trade, particularly if they escalate. Attacks on ships in the Red Sea are also causing disruptions. Embargoes on products from Russia continue to curtail trade. There are other hotspots which could flare at any time. Trends toward protectionist policies (such as increases in tariffs) or fragmentation due to the development of politically motivated blocks (such as China-Russia-Iran, for instance) could also become greater impediments.

International trade is critical to the economic success of all countries. It allows the production of goods and services to occur in the areas where it is most efficient from a resource perspective. This concept of “comparative advantage” was first demonstrated more than two centuries ago and remains foundational to human progress. The expectation of global trade expansion is good news, not only for the United States, but for advanced and emerging regions throughout the world. Stay safe!