Since 2011, global trade growth has been stagnant. With protectionist sentiment intensifying in the US and Europe, and with China appearing to pivot away from export-oriented growth strategies, a hypothesis informally known as “peak trade” has become increasingly popular. According to this view, the past five years of stagnant trade growth is not temporary, but instead reflects fundamental changes to the global economy that will drive continued stagnation in global trade over the next decade and beyond.

This view has important implications for global asset markets in at least two ways. First, trade is often seen as an engine of global growth, and the sputtering of this engine over the past five years (and the idea that it has permanently stalled) has been widely interpreted as an important reason to be sceptical of global growth in the long run — a view that is baked into the very low levels of long-dated bond yields in advanced economies. Second, peak trade implies long-run pessimism for the assets of economies particularly dependent on trade, including many emerging markets.

Our recent work, however, pushes back against three key variants of the peak trade hypothesis.