Developments in the global economy and trading system effects: The transformation of world trade

The Great Recession of 2008–2009 tested the resilience of economies across the world and placed enormous strain on the frameworks underpinning global cooperation. In no arena was the test more severe than in world trade, which, against a background of collapsing output and surging unemployment in the industrialised countries, fell about one-quarter in the first half of 2009, a rate of decline that exceeded the worst years of the Great Depression of the 1930s. Although the rate of recovery remains sluggish and the pace of trade liberalisation has slowed, a relapse into protectionism has been avoided and world trade volumes have surpassed the pre-crisis peak by some 25 per cent. The world trading system seems to have passed this most strenuous of tests. This chapter examines how two great changes in the global economic landscape, deepening trade integration (trade as a means of production as well as consumption), and the rising weight of developing countries, are changing trade and investment flows and creating new challenges for policy-makers.