WTO Sees Signs of Trade Revival, But Risks From Fragmentation — Update

By Paul Hannon

World trade is set to rebound this year and next as cooling inflation eases pressure on household budgets, according to the World Trade Organization, but the recovery may be weakened by growing distrust and fresh barriers between some large economies.

Flows of goods and services across national borders have swung wildly over recent years in response to the Covid-19 pandemic and the subsequent lifting of related restrictions. While trade in goods soared in 2021 and 2022 as households in lockdown were deprived of access to many services, last year saw a decline of 1.2%.

As recently as October, the WTO had expected to see growth of 0.8%. Declines in trade volumes are relatively rare, and usually accompany big setbacks to the global economy, as with the onset of the pandemic in 2020 and the fallout from the global financial crisis in 2009.

The decline in trade during 2023 was largely driven by Europe, where a surge in energy and food prices hit household spending on other goods. But with inflation rates easing and household spending power in repair, the WTO said global trade in goods is likely to increase by 2.6% this year and 3.3% next.

There are some signs that trade in goods is on that path to recovery. Surveys of factories around the world in March recorded the joint smallest decline in new export orders in a sequence that stretches over 25 months.

However, the Geneva-based dispute resolution body warned that the recovery could be slowed or derailed if governments try to steer trade away from nations that they perceive to be hostile or untrustworthy.

"We are making progress towards global trade recovery," said Ngozi Okonjo-Iweala, head of the WTO. "It's imperative that we mitigate risks like geopolitical strife and trade fragmentation to maintain economic growth and stability."

The WTO's warning comes as a growing number of economies enact or consider steps to protect their businesses from a flood of cheap goods from China. The U.S. and Europe are threatening to raise trade barriers to Chinese-made electric vehicles and renewable-energy gear.

Other economies including Brazil, India, Mexico and Indonesia are joining the backlash, zeroing in on Chinese exports of steel, ceramics and chemicals that they suspect are being dumped on their domestic markets at knockdown prices.

The WTO said that while trade between the U.S. and China does appear to be weakening, there isn't clear evidence of a broader and sustained reversal of globalization.

Trade between the world's two largest economies has grown 30% less quickly than their trade with other partners since 2018. The WTO also said there were signs that U.S. imports of information, computer and telecommunications services are being redirected towards North American neighbors and away from Asia.

While trade in goods has been volatile over recent years, the WTO said services that are delivered digitally across borders had continued to surge, and were 50% higher in 2023 than they were before the Covid-19 pandemic.

Those services--which include streaming of music and videos, online gaming, and remote education--accounted for 13.8% of total world trade, and are dominated by the U.S. and Europe.

China was once again the leading exporter of goods in 2023, accounting for 14.2% of the global total, with the U.S. a distant second at 8.5%. But in overseas sales of digitally supplied services, the U.S. led with a market share of 15.3%, followed by the U.K. on 10.3%. China ranked sixth on 4.9%, behind Ireland, India and Germany.

Although the WTO expects trade in goods to pick up this year, it doesn't expect to see an acceleration in world economic growth. The trade body expects world output to increase by 2.6% in 2024 and 2.7% in 2025, having expanded by 2.7% in 2023.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

April 10, 2024 09:33 ET (13:33 GMT)

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