Global trade volume increased rapidly before the global financial crisis, and the growth rate of global trade was more than twice that of global production. Trade liberalization policies, which have been implemented since 1947, played a role in this increase and contributed to global production. Moreover, the liberalization of trade brought higher living standards and per capita income has increased. Global trade integration has played an important role in poverty reduction with increasing global value chains. However, this trend has started to slow down with the global financial crisis. The ratio of trade openness, measured as the ratio of total exports and imports to gross domestic product, has begun to decline in both developed and developing countries.
Several factors play a role in increasing trade risks. The decline in trade liberalization is one of the significant ones. In recent years, the number of regional trade agreements has decreased significantly and the barriers in trade have increased. Tariff rates were increased, tax was imposed on exports and customs procedures were made more difficult. Between October 2017 and May 2018, more than 30 trade-limiting measures were introduced in the G-20 countries. Another reason is that countries increase trade barriers to the international business environment. In Germany, for example, procedures for entrepreneurs to do business have become difficult. Local certification requirements were brought for starting a business, tariff rates were increased, and job security requirements were increased in Germany. Changes in the geographical composition of demand also play a role in increasing trade risks. The contribution of private sector investment and consumption to demand has gradually decreased, and emerging Asian economies and North America have been the largest contributors to this decline. Especially the slowdown of the Chinese economy has a negative impact on global trade.
The increase in trade risks is reflected in prices and increases production costs. For example, the increase in the tariff rate of steel in the US affects both the producers and the consumers, negatively. Another problem is that increased inflation leads to higher interest rate. This also reduces the credit usage of SMEs, which are the backbone of the national economies. In addition, trade risks lead to increased uncertainties and reduced investment, productivity and employment are adversely affected, and global growth is slowing down.
In summary, increasing trade risks bring greater risks. What can be done? The World Trade Organization (WTO) is an important player in global trade and the force behind trade liberalization. Therefore, the WTO needs to be strengthened, and this should be addressed through a multilateral work. In addition, global e-commerce is a unique opportunity for these periods. There is a need to expand e-commerce and to ensure uniformity in international e-commerce transactions. Another solution is to increase global trade integration, which should strengthen international cooperation. Otherwise, the spread of global trade conflicts will be inevitable.