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The global economic order is undergoing a massive long-term shift away from free trade towards a more fragmented or more precisely a patchwork structure. This new emerging global economic system is largely influenced by rising protectionism, geo-political tensions and structural risks.
The post WWII era marked a decisive break with the past; new multilateral institutions emerged that imposed legal obligations on member countries, especially in trade. These measures were undertaken to avoid the repeat of 1930s global economic crisis.
The concept of free trade has long been a cornerstone of global economic policy. Global trade has surged since the end of the WWII, driven by technological change, but more importantly by an increasing disposition towards free trade. The establishment of multilateral institution such as GATT and its successor institution the WTO further promoted increased global trade flows.
China's integration into the global trade system further bolstered the trade flows. China joined the WTO in 2001, transforming itself into a major participant in global trade and supply chains. In fact, China since joining the WTO has transformed into a dominant force in global manufacturing. This structural shift of the Chinese economy is evident in the increase in China's share of global manufacturing production which surged from 5 per cent in 1995 to 28 per cent in 2023.
China now stands as the world's leading manufacturing superpower, accounting for approximately 30 per cent of global manufacturing value-added output in 2025. This share exceeds that of the next three largest manufacturing nations-the United States, Japan, and Germany-combined.
Free trade, however, has faced significant criticism from various quarters, leading to a growing backlash and policies that restrict trade. The gains associated with free trade tend to be incremental and dispersed among many people in the form of increased choice and lower costs for consumers. The costs of free trade, however, are highly concentrated for specific industries and workers, leading to unemployment and regions that become economically depressed. In this context Dani Rodrik pointed out "the consumer price effects of trade can never fully compensate the losers." Overall, the international economic system that evolved became less flexible in terms domestic economic policy formulation.
The backlash against free trade led to a steady increase in trade restrictive policies globally. The IMF found that the number of new trade restrictions being imposed has increased over time, with numbers of new restrictions in 2022 being 6 times higher than in 2013.
To boost federal revenue and address trade concerns, President Trump imposed high tariffs on nearly all imported goods during his second term. When he assumed the office in January 2025, the average rate of tariff was 2.5 per cent. The rate reached a century-high of 27 per cent by April 2025, but following extensive negotiations, it was reduced to 16.8 per cent in November 2025.
Economists generally agree that the overall trade balance cannot be directly controlled by presidents or any other individuals as a policy tool. It is a macroeconomic phenomenon shaped by savings and investment behaviour, fiscal policy, and capital flows. Tariffs may affect trade partners and impact specific sectors, but they do not control the overall trade deficits. Tariffs can buy time for domestic adjustment in sectors subject to unexpected surges of imports. In this view, tariffs are not instruments of macroeconomic fine-tuning, but instruments to be used temporarily as a second-best option.
Trump's tariffs led to retaliatory measures from several countries, including China, now the world's largest trading nation. The deputy managing director of the IMF in an opinion piece published in the Financial Timed opined that it would be a mistake to think that the global economy is unaffected by "tariff fights and policy chaos" and "structural damage reveals itself slowly and always too late to be reversed".
Trump's most recent social media claim that his tariff policies have "rescued" the US economy. He presented fresh economic data seeking to link a narrowing of the US trade deficit to his "rescuing" of the US economy. The logic is not merely misleading - it is economically absurd. Trade deficits decrease when domestic demand falls, imports are restricted as in the current US situation, or uncertainty limits trade.
Simultaneously the economy is booming and that imports are collapsing as claimed by Trump go against the most basic tenets of national income accounting. These kinds of stories might serve political interests, yet they do not accurately reflect the facts. In fact, the US economy is experiencing slowdown in GDP as early as 2025 due to trade policy with high services sector inflation.
FT financial commentator John Plender early January this year commented "what is clear is that US economic supremacy is very rapidly being eroded as it dismantles the post-war rule based international order of which it was the chief architect. Instead of regarding multilateral institutions as providers of public good, Trump and his acolytes see them as an affront to national sovereignty".
In his Davos speech, Canadian Prime Minister Mark Carney, former Governor of the Bank of England (2013-2020), noted that the US-led rules-based system was not always upheld when it benefited the US. This isn't exclusive to Trump. While Carney did not mention Trump by name in his speech at Davos, yet Trump seems have been annoyed and disrespectfully calls him "Governor Carney" and continues to threaten to make Canada as the US' 51st state. Trump is tearing up all the institutions and arrangement, both economic and political, regarding them as inimical to the US interests, even threatening to occupy Greenland from its NATO ally Denmark.
As the US government debt is on an unsustainable trajectory, it makes US Treasuries unsafe for investment. The role the dollar as the world's pre-eminent currency is also in question now. In late January, the Bloomberg Dollar Spot Index saw its sharpest decline since last April, hitting its lowest point since February 2022. The dollar's sharp decline is part of a broader downward trend that began when Trump rolled out his sweeping global tariff agenda in April last year.
The US does not look like a good place to park one's money now. Some pension funds have already withdrawn investments from Treasury bonds and other U.S. assets. The stock market and the dollar are going down anyhow. Under such conditions if the US is considered unsafe, global capital will flow into real assets such as gold as reflected in recent surge in gold price reaching $5,185 an ounce early last week signalling lack of confidence in the US dollar as the global currency. This also indicates devaluation of the US dollar since Nixon removed its gold backing in 1971 when the rate was $35 an ounce. In essence, the era of US hegemony is slowly but surely coming to an end and the rest of the world better come to recognise that and move on to adjust to that fact.
Small economies like Bangladesh have the most to gain from trade. Small economies often lack economies of scale and market depth, so international trade is essential for accessing a wider variety of goods and services.
As Bangladesh navigates the uncertain global trade environment, it is crucial that policy makers in the country understand the historical context of trade and its benefits. Despite the challenges posed by the current surge in protectionism and shifting global geo-political dynamics, trade remains the major factor in improving living standards and poverty reduction.