The Third Trade Revolution: The Optimization of Trade Routes 

Since the beginning in 1992, world trade has grown enormously. Many people credit this to the rise of China as an economic power, but in reality, China’s rise was facilitated by two major changes in how the global economy is managed. Both have eased what University of Toronto trade expert Sylvia Ostry called “system friction” – the logistical, commercial and diplomatic problems that had slowed trade growth over the 10 previous years, and with it, the growth of the global economy.

The first change to have a significant impact on world trade was the emergence of so-called client server computer architecture and the Internet between 1992 and 1995. 

A second change also took place in 1995, when the World Trade Organization (WTO) replaced the General Agreement on Tariffs and Trade (GATT), which had been the governing body on trade since its creation by the United Nations in 1947.

With the emergence of these two shifts, the rate of world trade growth, which had been falling for almost a decade, suddenly accelerated. As nations joined the WTO and as companies began to familiarize themselves and exploit the benefits of the Internet and continuing improvements in computer technology, world trade became a key driver in international GDP growth and prosperity, which was reflected in rising share prices for much of the period. While the financial crisis of 2008-2009 put the brakes on trade growth and the related health of financial markets, system friction in international trade has also re-emerged, in two forms. 

Click here to download full text.