Post-WWII Trade Rules Mask Rich Nations' Continued Economic Dominance

The Great Unraveling: How the World's Economic Web May Be Coming Apart

Trade volume in 2024 dwarfs 1800 levels by two thousand times and exceeds early 1900s figures by eighty times. This staggering expansion represents one of humanity's most remarkable achievements—the weaving of a global economic web that lifted billions from poverty and connected distant corners of the earth through commerce. Yet this interconnected world, built painstakingly over centuries, now faces its greatest test. Rising nationalism, supply chain shocks, and geopolitical fractures threaten to unravel decades of integration. Multinational corporations and export-dependent economies stand to lose trillions in market access, while ordinary consumers face dramatically higher prices for everything from smartphones to coffee.

The Long March Toward Integration

Until 1800, international trade never exceeded 10% of global output. Trade flowed mostly between empires and colonies, with most production consumed locally—a pattern that provided greater resilience against external shocks, even as it constrained growth. The first transformation began in the 19th century. Steam ships, telegraphs, and railways collapsed distances that had separated markets for millennia. Between 1830 and 1900, intra-European exports jumped from 1% of GDP to 10% of GDP. Western Europe started trading with Asia, the Americas, and to a smaller extent Africa and Oceania. But this first wave crashed against the rocks of nationalism and war. World War I ended the first wave of globalization when declining liberalism and rising nationalism triggered a slump in international trade. Protectionist walls rose. Economic integration reversed. The world economy splintered into competing blocs—a fragmentation that contributed to the Great Depression and ultimately to World War II.

The Post-War Renaissance

From World War II's ashes emerged a new vision of economic cooperation. The General Agreement on Tariffs and Trade (GATT) created rules that prevented another collapse into economic nationalism. Through eight rounds of negotiations between 1947 and 1994, export subsidies disappeared from everything but agricultural products, and import tariffs on manufactured goods dropped to inconsequential levels. Technology accelerated this integration. Commercial aviation developed, merchant marine productivity improved, and telephones democratized communication. Ocean shipping advances—larger vessels, containerization—slashed international transaction costs. Even overbuilt fiber optics capacity from the 1990s dot-com boom drove down telecommunications prices. The numbers tell the story. Up to 1870, worldwide exports accounted for less than 10% of global output. Today that figure reaches 25%. Trade growth has outpaced rapid economic growth over the last century, following an exponential path.

The Changing Nature of Exchange

This second wave brought qualitative changes alongside quantitative growth. Countries shifted from exporting goods completely different from their imports (inter-industry trade) to exchanging broadly similar goods and services (intra-industry trade). This created more complex interdependencies—countries became less vulnerable to demand shocks in specific sectors but more exposed to supply chain disruptions cascading across multiple industries. Trade composition evolved. While goods trade has existed for millennia, services trade emerged recently. Globally, goods account for most trade transactions, but services' share has increased. In the UK, services represent half of all exports, while in Nigeria and Venezuela, services account for a small share—reflecting broader inequalities in globalization's benefits. Geography transformed as well. Until World War II, most trade involved exchanges between rich countries. Today, trade between non-rich countries equals trade between rich countries in importance. Between 1992 and 2011, China's trade with Sub-Saharan Africa rose from $1 billion to more than $140 billion. Most preferential trade agreements now connect developing economies.

Cracks in the Foundation

Beneath this expansion, vulnerabilities accumulated. The 2008 financial crisis exposed how interconnected markets transmit shocks at lightning speed, wiping out $11 trillion in global market value within months. COVID-19 revealed just-in-time supply chains' fragility, creating shortages from semiconductors to toilet paper. Russia's Ukraine invasion demonstrated how geopolitical conflicts weaponize economic interdependence, turning energy and food supplies into instruments of war. These shocks coincided with political backlash against globalization. Workers displaced by trade competition, communities hollowed out by factory closures, and citizens left behind by global integration demanded protection. While globalization created enormous aggregate wealth, its benefits flowed disproportionately to capital owners and high-skilled workers, leaving middle-class manufacturing workers economically stranded. Globalization's institutional architecture showed strain. Multilateral trade negotiations stalled as players multiplied and interests diverged. Bilateral and regional deals proliferated, creating a patchwork of overlapping rules rather than universal standards.

The Uncertain Path Ahead

Today, economic logic increasingly conflicts with political imperatives. Most countries produce more than decades ago while trading more of what they produce. Integration momentum continues, driven by technological forces and market incentives that remain powerful despite political headwinds. But political winds blow in the opposite direction. Governments speak of "reshoring" production, reducing dependence on foreign suppliers, and securing control over critical industries, even as their economies remain deeply integrated into global value chains. Supply chains that once stretched globally now face pressure to become more regional, more redundant, more politically acceptable—changes that could increase costs by 20-50% for many goods while providing only marginal security improvements. Multinational corporations that built global supply chains over decades face massive stranded investments if borders close. Export-dependent developing nations risk losing access to markets that drove their growth. Yet domestic manufacturers in advanced economies see opportunities to reclaim market share, while workers in import-competing industries hope for protection from foreign competition. Will countries retreat into economic nationalism, fragmenting the global economy into competing blocs? Or will they make globalization more resilient, more inclusive, more politically sustainable? The answer may depend on whether policymakers can design new institutions that preserve integration's benefits while addressing its vulnerabilities. The current level of global integration has enabled unprecedented prosperity, innovation, and cooperation, lifting over a billion people out of extreme poverty. Reversing it would impose enormous costs—higher prices for consumers, reduced opportunities for businesses, slower technological progress, and diminished capacity to address global challenges from climate change to pandemics. The future of globalization depends on policy choices made by governments and countries' willingness to cooperate while acknowledging legitimate concerns of those left behind. The great unraveling is not inevitable, but neither is continued integration. The world economy stands at an inflection point—and the authors of the next chapter face the most complex set of trade-offs in modern economic history.