The Oversaturation Project

The new geography of trade

It is an article of faith that global trade will be an ever-growing presence in the world. Yet this belief rests on shaky foundations. Global trade depends on cheap, long-distance freight transportation. Freight costs will rise with climate change, the end of cheap oil and policies to mitigate these two challenges.At first, the increase in freight costs will be bad news for developed and developing nations alike but, as adjustments in the patterns of trade occur, the result is likely to be decreased outsourcing with more manufacturing and food production jobs in North America and the European Union. The pattern of trade will change as increasing transportation costs outweigh traditional sources of comparative advantage, such as lower wages.

The new geography of trade will not result from policy or treaties but from the impact of changing environmental conditions due to the growth of the human economy. Global trade can be disrupted by many kinds of natural disaster: the tsunami and nuclear emergency in Japan slowed auto production in the United States, and Australian floods lowered coal exports to China. The supply chains of global production and distribution are more vulnerable than we would like to admit. Up to now, we have adapted to disruptions and global trade has continued to expand. But greater challenges to global trade lie ahead. Continual growth, or even maintenance, of the current physical volume of trade is unsustainable.Many goods will be manufactured closer to where they are consumed, as supply chains become more regional and local. Petroleum- and transport-intensive products, such as imported food, clothing, appliances and building supplies will become more expensive; lifestyles and consumer purchasing in developed nations will shift to reflect these changes. Export-oriented nations relying on a limited number of exports to pay for imported necessities will need to become more self-reliant in meeting basic needs.