During most of the last decade, there was a perfect correspondence between the annual averages in the growth of world economy (3.4%) and the global trade transactions (3.4%).

Last year, that relationship broke down: the world economy grew 3.3% while the volume of world trade declined 3% to a total of $31 trillion.

The fact that the goods trade declined 5% and services transactions soared 8% shows an interesting structural shift, but that does not say much, if anything, about the real causes of an erstwhile strong tie between world trade and output.

The weakness of the developing countries’ trade and of the South-South transactions is also an implausible explanation of such a large loss of trading volume in a growing world economy.

The real explanation lies in the actual trade record of the U.S., China and the E.U.

Those three large economic systems accounted for 54% of the world trade in 2023. And all of them showed a dismal trade performance.

Large declines of China trades

China last year had virtually no growth in its yuan denominated trade volume, while the U.S. and the E.U. saw, respectively, their foreign trade declines of 3.7% and 9%.

In the case of China, a weak foreign trade also means that the economy was entirely driven by a very strong domestic demand. In fact, China’s 5.5% economic growth last year was generated by a 6% increase in domestic demand and a 0.5% decline in net exports.

Last year, China’s total merchandise trade with the United States fell 17%, as Chinese exports crashed 20% and American sales to China went down a relatively modest 4%.

That is a considerable progress in China’s long overdue trade adjustment with the United States. But there is still a very long way to go toward a better balance of bilateral trade accounts. Indeed, China’s exports to the U.S. in 2023 were three times larger than Chinese purchases of American goods.

And there is worse. Trade numbers for the first half of this year show that there is a worrying slowdown in closing America’s huge trade gap with China. The decline of China’s exports to the U.S. was only 2% from the year earlier, and the U.S. trade deficit with China was running at an annual rate roughly comparable to the one in 2023.

It all looks like the U.S.-China trade is hitting structural barriers toward a more tolerable trade imbalance at a time when American systematic and excessive trade deficits will remain a source of serious political frictions with Beijing.

A new round of sweeping American trade sanctions on Chinese firms accused of dual (private/military) exports to Russia is a case in point. China is bristling with retaliatory threats to any such U.S. measures while Washington needs Beijing’s cooperation in managing the intractable Arab Israeli warfare, and an apparently imminent Iranian attack on Israel in revenge for the recent killing of Hamas leader during his visit to Tehran.

Political and security tensions

China’s trade with the European Union is also undergoing an adjustment process. Europeans want to significantly reduce their dependence on trade and investments with China. The bilateral trade in 2023 declined 14%, Chinese exports to the E.U. fell 18%, and the E.U.’s trade deficit with China was slashed a whopping 27%.

The E.U. trade with China is much bigger than the trade business the U.S. does with China, and the Europeans have a better competitive position in their China trades. The E.U. exports to China, for example, were one half of Chinese export sales to Europe in 2023 – a big improvement compared to 2022.

The Europeans still consider that their trade with China is excessively imbalanced and insist on further reductions of Chinese imports.

The urgency to do that has been highlighted by a huge influx of competitively priced Chinese electric vehicles. The E.U. now wants to impose import tariffs on Chinese EVs of up to 36% in response to China’s allegedly illegal state subsidies. China is ready to retaliate, and it is not clear how this trade dispute will be solved in an already tense relationship of E.U.’s “de-risking” China ties.

In spite of that, this year’s outlook for China trades with the trans-Atlantic community should be positive. China’s strong growth of domestic demand -- and its promise of further market openings -- bode well for imports of foreign goods and services. And that’s exactly what the sluggish and slowing American and European economies need.

But that, however, is not a safe bet. The West’s political and security tensions with China are fired up by wars in the Middle East and Europe, and by direct confrontations with China about its contested maritime borders and the status of Taiwan.