Why globalisation increased: trade liberalisation, politics and technology

Trade liberalisation and the WTO

Trade liberalisation is the removal or reduction of barriers to trade such as tariffs and quotas.

The World Trade Organization (WTO) was established on 1 January 1995 after the Uruguay Round of negotiations (1986 to 1994). It has 166 members accounting for 98% of world trade. Its roles:

• a forum for negotiating trade agreements that cut barriers;
• settling disputes between members;
• monitoring members' trade policies.

Key principle: non-discrimination, so a member should not favour one trading partner over another (most favoured nation), apart from permitted exceptions such as free trade areas.

Political change

Political decisions open economies: China's opening to trade and investment and its entry to the WTO on 11 December 2001; the end of the Soviet Union and central planning in Eastern Europe; India's market-opening economic reforms; the enlargement of trading blocs. Political change can also reverse globalisation, for example new tariffs, sanctions or the UK leaving the EU.

Reduced cost of transport and communication

Containerisation, larger ships, cheaper air freight and better ports cut the cost of moving goods. The internet, mobile networks, video calls and cloud software cut the cost of managing operations and serving customers across the world. This makes global supply chains, offshoring of services (call centres, software development) and e-commerce possible even for small firms.

Using recent data

The WTO (October 2025) reported world merchandise trade volume growth of 2.8% in 2024, forecast 2.4% for 2025 and only 0.5% for 2026, because importers bought early (front-loaded) ahead of higher tariffs, which took effect in August 2025, and the effect of those tariffs is expected to show later. This shows that political decisions can slow globalisation as well as speed it up.

Worked example

Explain how lower communication costs help a small business sell globally.

1. The internet lets the firm reach overseas customers through its own website and online marketplaces.
2. Marketing through social media costs far less than traditional overseas advertising.
3. So even a small firm can find customers worldwide without setting up offices abroad.

Answer: Cheap digital communication lowers the cost of reaching and serving foreign customers.

Check yourself

1. Which of these is a function of the WTO?
   • Settling trade disputes between member countries
   • Setting interest rates for member countries
   • Lending to countries with balance of payments problems
   • Setting the exchange rate of the US dollar
   Show answer

   Settling trade disputes between member countries. The WTO negotiates trade rules, settles disputes and monitors trade policy.

2. Trade liberalisation means
   • increasing tariffs to protect jobs
   • government ownership of exporters
   • reducing barriers to trade such as tariffs and quotas
   • fixing exchange rates
   Show answer

   reducing barriers to trade such as tariffs and quotas. Liberalisation frees trade from restrictions.

3. The WTO forecast world merchandise trade volume growth of 2.4% in 2025 and 0.5% in 2026. If a trade volume index is 100 at the end of 2024, what will it be at the end of 2026 if both forecasts are correct? Give your answer to 1 decimal place.
   Show answer

   102.9. 100 x 1.024 x 1.005 = 102.9.

4. Explain how containerisation contributed to globalisation.
   Show answer

   Standard containers can be moved quickly between ships, trains and lorries, cutting loading time and handling costs, so the cost of transporting goods internationally fell and more trade became profitable.. Lower transport costs make trading over long distances profitable.

5. Which is an example of political change that increased globalisation?
   • A country introducing new import quotas
   • China joining the WTO in December 2001
   • A rise in oil prices
   • A natural disaster closing ports
   Show answer

   China joining the WTO in December 2001. China's WTO membership opened its market and its exports to rules-based trade.

6. The WTO says its members account for 98% of world trade. If world trade in a year is worth $32 trillion (an illustrative figure, not a WTO statistic), how much of it, in $ trillion, is not accounted for by WTO members?
   Show answer

   0.64 $ trillion. 2% of 32 = 0.64 trillion.

7. Explain how political decisions can slow down globalisation.
   Show answer

   Governments can raise tariffs, impose quotas or sanctions, or leave trading blocs, which raises the cost of trade and makes businesses cut imports or move supply chains closer to home.. Protectionist politics raise the cost of trading across borders.

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Sources

• Pearson Edexcel International Advanced Level in Business specification (first teaching 2018)
• WTO: Who we are
• WTO press release: Global trade outlook and statistics, 7 October 2025
• USTR archive: Background information on China's accession to the World Trade Organization (2001)

Last updated 8 November 2026. Spotted a mistake? Tell us.