Globalization before Trump 2.0 increased, despite backlash

President Donald Trump’s new tariffs mark the latest steps in a 15-year policy path of growing trade restrictions around the world.

However, most countries also became more economically intertwined as their global commerce increased during this period, according to a measure developed by economist Jeffrey Frankel (2000).

He devised a simple but clever index, now called the Frankel Index (FI), to assess the extent and path of globalization. The import version of the FI is a ratio that relates the import share in a country’s GDP to the share of the rest of the world’s GDP in global GDP. For example, if a country imports 20 percent of its GDP, and if the rest of the world’s GDP is 90 percent of global GDP, the FI would be calculated as 20 percent/90 percent, or 0.22.[1]

If a country’s residents buy from foreigners as easily as they buy from domestic suppliers, then foreign products would show the same share in the country’s spending as the spending by citizens from the rest of the world. With complete globalization, the import share in a country’s GDP should equal the share of the rest of the world’s GDP in world GDP—in other words, the FI should equal 1.0: The higher a country’s FI, the more integrated with the global economy—or “more globalized”—the country. Except for small open economies, such as Singapore, with very high trade ratios, the FI value is typically well below 1.0. In fact, the index consistently declines as the country’s share in world GDP rises.

Country-specific and time-specific factors also can lead to differences in FI values. For example, richer countries of a given size may have higher FI values than poorer countries of the same size. Since 2000, FI values have been generally larger due to China’s emergence as a trading power. The economist Rolf Langhammer (2011) sampled more than 100 countries to examine the evolution of FI values over time (1990, 1995, 2000, and 2005). Langhammer’s analysis revealed a pattern of smaller FI values for larger countries (measured by GDP) in a given year, but rising FI values over time for the great majority of countries, and some convergence in the degree of globalization between large and small economies over time.

The policy context during the period covered by Langhammer’s analysis was highly favorable for globalization. President Bill Clinton, a free-trade Democrat, championed the North American Free Trade Agreement (NAFTA, implemented in 1994), the Uruguay Round of Multilateral Trade Negotiations which created the World Trade Organization (WTO, entered into force in 1995), and China’s eventual accession to the WTO (concluded in 2001). The European Union launched a single market in 1993, fostering the free movement of goods, services, capital, and labor within the bloc. The simple average of applied tariff rates for all products globally declined from 14.3 percent to 7.4 percent, and global trade in goods and services more than tripled in nominal terms from $8.75 trillion in 1990 to $25.7 trillion in 2005.

The policy environment in the decades following Langhammer’s analysis became decidedly less favorable to globalization. The global financial crisis of 2008–10 called into question open capital markets. The Doha Round of Multilateral Trade Negotiations, born in 2001, slowly expired. Plurilateral talks on single subjects at the WTO, such as the Trade in Services Agreement and the Environmental Goods Agreement, also failed.[2] President Barack Obama adopted a tepid attitude towards globalization and was slow to embrace the Trans-Pacific Partnership (TPP). Negotiations on the Transatlantic Trade and Investment Partnership between the European Union and the United States ended in 2016, and the US-China Bilateral Investment Treaty talks stalled. Britain voted to leave the European Union in 2016. President Donald Trump withdrew the US application to join the TPP in 2017, criticized and renegotiated NAFTA into the US-Mexico-Canada Trade Agreement, and launched a trade war with China. On the bright side, despite the US withdrawal, the 11 other countries negotiating the TPP launched it as the renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the UK joined the bloc in 2024. The Global Trade Alert documented that, over the ensuing decades following Langhammer’s paper, the frequency of restrictive trade measures exploded. By 2024, new restrictive measures exceeded 3,000 annually, while new liberalizing measures totaled just over 1,000 (see figure 1).

In other words, many policymakers had grown more hostile toward globalization well before President Trump was inaugurated for his second term in January 2025. Bearing the policy record in mind, it is worth examining the evolution of the FI since 1990.

A sample of 68 countries from different geographic regions and of various income levels are analyzed in figure 2. By income group, the sample covers 35 high-income, 13 upper-middle income, 11 lower-middle income, and 9 low-income countries. By geographic region, the sample covers 14 nations in Asia and the Pacific, 32 in Europe and North America, and 22 in Africa, Latin America, and the Middle East. To calculate the FI, trade flows cover both goods and services, and both imports and GDP are expressed in constant 2010 dollars (in other words, adjusted for inflation).

Figure 2 shows fitted regression lines for the FI (import version) for the whole sample of 68 countries for the years 1990, 2000, 2010, 2020, and 2023. Right up to 2023 (the most recent year of available data), the fitted lines show increasing globalization for a wide range of countries over time. The lines for the countries in each year start on the left at increasingly high points on the FI (import version). For example, the 1990 line starts at a bit over 0.2, while the 2023 line starts at almost 0.6. Each line also reaches farther outward to the right, reflecting the steady growth of the countries’ market sizes over time.

Figure 3 shows fitted regression lines for the 35 high-income countries in the sample. Again, decade by decade, right up to 2023, the fitted lines start on the left from a higher point and end farther out on the right, confirming greater globalization. The same pattern holds for the 33 middle and low-income countries in the sample (figure 4).

To summarize, despite the hostile policy environment since 2010, globalization continues to characterize commercial transactions between the overwhelming majority of countries. It remains to be seen whether Trump’s aggressive tariff agenda changes this pattern.

References

Frankel, Jeffrey. 2000. Globalization of the Economy. National Bureau of Economic Research, NBER Working Paper 7858, Cambridge, MA, August 2000. Revised Version in: Joseph Nye and John Donahue (Eds), Governance in a Globalizing World, 2000, Washington: Brooking Institutions, 45-70.

Langhammer, Rolf. 2011. Does International Trade Catch Up with National Trade of Countries? Yes. The International Trade Journal, 25:4, 398-417

Notes

1. Here’s the equation for the \( \text{Frankel Index (import version)}_{i,t} = \frac{\text{Import}_{i,t}}{GDP_{i,t}} \div \left( \frac{GDP_{\text{world},t} - GDP_{i,t}}{GDP_{\text{world},t}} \right) \)

2. The only multilateral agreement entered into force after the Doha Round is the Trade Facilitation Agreement in 2015.