Geopolitics, Trade Blocks, and the Fragmentation of World Commerce

Social divisions, great power rivalry, and outdated trade rules are eroding the political support for free trade. The consequence is trade uncertainty, economic fragmentation, and, most ominously, heightened international tensions. The author explores the reasons behind fragmentation, its prospects, and how policymakers can mitigate its effects. The global economic edifice built after World War II is a source of unprecedented prosperity. It cannot function without open and predictable international trade, and the peaceful international relations that are its foundation. The rules that enable trade are under attack. Social divisions and great power rivalry have eroded the political support for open trade. The consequence is fragmentation of world trade, its separation into blocks that advance domestic producers or favored nations nearby. These blocs are themselves often pulled apart by competing agendas. The prospects are for vastly reduced economic efficiency and - most ominously - heightened geopolitical tensions. The questions about why this is happening, how economic fragmentation will evolve, and how to respond to it, are uppermost in the minds of policymakers and businesses across the world. These are the questions that Uri Dadush seeks to answer. Since the uncertainty cannot be dispelled, it must be better managed.