Post-GFC trade slowdown indicative of a global malaise

Interestingly, this means the trade slowdown is predominantly a macroeconomic phenomenon suggesting a macroeconomic policy response. We can rule out monetary policy as its effectiveness globally has reached its limit. And the macroeconomic response certainly should not mean more fiscal stimulus in the form of government spending for its own sake either. That kind of response to the GFC substantially contributed to the present global and Australian economic malaise to which its international and domestic architects remain blind.

Infrastructure spending involving private-public partnerships could be part of the policy response mix, but what is often forgotten is that infrastructure has to be highly productive since funding it diverts funds in finite supply away from possibly more productive private investment.

More important, governments need to aim directly at improving productivity via supply-side measures involving deregulation and tax reform.

Meanwhile, restrictive inter­national trade measures imposed by governments worldwide since the GFC account for much of the rest of the slowdown. More than 1200 restrictive trade measures have been implemented by G20 economies since 2008 and continue to increase, currently at the rate of 17 each month according to the WTO.

So promoting freer trade and limiting self-defeating protectionism also remain as important as ever - more globalisation, not less, will improve the world economy. Yet it has become commonplace to blame globalisation for economic disaffection in Western democracies, as reflected in the Brexit vote, the rise in support for minor parties in Australia, and the election of Donald Trump.

But the irony is that globalisation has been petering out as the disaffection has grown and is symptomatic of economies not performing as they used to. Singling out globalisation as the primary cause of voter dissatisfaction oversimplifies things. And it does not fit the facts.