Making Depressions Great Again

Political leaders have made many mistakes since the 2008 financial panic, but by some miracle a trade war isn’t one of them. There are signs that this luck is running out, at a moment the world economy can least afford it.

The pace of global trade continues to tumble, an ominous trend for growth. Meanwhile, the U.S. may renounce its historic role as the anchor of the open international trading system. Both Democratic presidential candidates are trade skeptics, or claim to be. And the leading Republican, Donald Trump, would be the first avowed protectionist to lead a ticket since the 1920s.

Forecasters expect world GDP to grow by only 2.2%-2.4% this year, and one reason is that trade flows are historically weak. Trade volumes have flattened among advanced economies and continue to shrink in emerging markets. The OECD estimates that the trade slowdown since 2012 has subtracted about half a percentage point a year from the overall growth rate in the developed world.

The reason to worry is that trade growth typically outpaces GDP by a wide margin, as the nearby chart shows. After a post-recession rebound in 2010 to 12%, trade growth slipped to 7% in 2011, stagnated at 3% for the next three years and then fell below 2% for 2015—well below GDP for the first time since 9/11. The 1987-2007 average was 7.1%.

CLICK CHART to ENLARGE

Reviving trade is crucial to driving faster growth, yet the paradox of trade politics is that it is least popular when economic anxiety is high and thus trade is most crucial. And so it is now: Four of the remaining U.S. candidates claim to oppose the Trans-Pacific Partnership, and Congress now lacks the votes to pass it.

The loudest voice of America’s new antitrade populism is Mr. Trump, who has endorsed 45% tariffs on Chinese and Japanese imports and promises to punish U.S. companies that make cookies and cars in Mexico. When Mr. Trump visited the Journal in November, he couldn’t name a single trade deal he supported, including the North American Free Trade Agreement (Nafta).

He says he’s a free trader but that recent Administrations have been staffed by pathetic losers, so as President he would make deals more favorable to the U.S., and foreigners would bow before his threats. “I don’t mind trade wars,” he said at Thursday’s debate.

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