200 years of foreign trade

The apparently unstoppable growth of world trade stopped in 2007, interrupting the process of opening up the world economy. The current prospect of a trade war is generating concerns for the future. Some fear they can repeat a situation like the one that led to the Great Depression. These historical parallels are fascinating, but they are also risky. One should not venture into these analyzes without knowing exactly what happened in the past to foreign trade (Eichengreen and O'Rourken 2012). The analysis of the dynamics of world trade is quite consolidated for the last few years. On the other hand, data relating to the period before 1938 are incomplete, obsolete and sometimes contain errors. For this reason, Giovanni Federico (Professor of Economic History, University of Pisa) and Antonio Tena-Junguito (Associate Professor in the Department of Social Science, Universidad Carlos III de Madrid) have started a research project on world trade from 1800 onwards . Their results have been reported in numerous articles (Federico and Tena-Juanquito 2017a, 2017b, 2018a). A summary of the results is available in the article "The world trade historical Database" published on VoxEU.org and in some previous articles (Federico and Tena-Juanquito 2016a, 2016b).

In short, what the two authors have discovered is described below.

From Waterloo to the Great Depression

Trade grew very fast throughout the long 19th century, from Waterloo to the First World War. After that, it quickly recovered the shock of the First World War, then collapsed by a third during the Great Depression.

The second post-war period

Trade grew at a loss in the golden age of the 50s and 60s and again, after the slowdown due to the oil crisis, from the mid-70s to the outbreak of the Great Recession of 2007.

The current phase

The effect of the Great Recession on trade growth is considerable but almost negligible compared to the combined effect of the two world wars and the Great Depression. However, the effects could become increasingly comparable if the current stagnation of trade continues.

The race of Asia

The distribution of world exports by continent and level of development remained fairly stable until the First World War. During the Great Depression, Europe lost more than the rest of the world, and the peripheral countries (and Japan) have gained. These changes were largely reversed during the golden age of the 50s and 60s. In 1972, Europe and the United States still accounted for more than half of world exports. Since then, changes in world shares have been large and, at least so far, permanent. The share of Asia has risen from about one sixth to one third, to the detriment of all other continents.

The second globalization

Contrary to a widely shared vision, the current level of openness to trade is unprecedented in history. The export / GDP ratio (Gross Domestic Product) in 2007 (11.5%) was much higher than the previous peak of 1913 (6.3% of GDP, for 36 countries). The difference is also much greater if the sum of agricultural and industrial added value is used as the denominator. The degree of openness of the world economy to foreign trade increased from 1830 to 1870 (the first real phase of globalization of the world economy) and again from the mid-70s to 2007, while it remained substantially constant both in the decades of the so-called globalization (1870-1913) and during the golden age. Needless to say, the degree of openness collapsed during the Great Depression, and then started again in the mid-nineteenth century.

Composition of world trade in the first globalization

The share of raw materials decreased from around 65% in 1820 to just over 55% on the eve of the First World War. In the 1920s, the decline continued, albeit very slowly, while the share rebounded after 1929, returning to the levels of the beginning of the century. This dynamic was the result of the change in US specialization. Raw materials accounted for four fifths of US exports before the civil war and they collapsed to a third on the eve of the First World War and in the interwar years.

The research has made it possible to clarify that in the course of the first globalization world trade has taken on a more complex structure than a simple model of vertical trade, in which poor countries export only raw materials to rich countries and the latter sell only manufactured goods poor countries. In fact, raw materials accounted for the majority of both exports from poor countries (on average 86.1% from 1850 to 1938) and imports from rich countries (73.6%), raw materials also represented about a third of exports from rich countries (38.0%) and just under half of imports from poor countries (45.5%).

Obviously, an analysis based only on the share of raw materials of world trade scarcely scratches the surface of the problem. Unfortunately, deepening this analysis requires a high research effort.