World trade volume is in retreat for the first time in more than two decades and the contraction is on a scale not seen since the global recession following the second oil shock of 1979–1980. The United States (US) is at the epicenter of the crisis and is a major source of external demand for developing Asia and Pacific economies. US import and export data are examined to understand the repercussions of the crisis for international trade, particularly for export-oriented economies in East and Southeast Asia. US trade with preferential trade partners is found to be contracting significantly faster than trade with the rest of the world. Moreover, US imports that avail of preferential tariff treatment are also contracting more sharply than imports from non-preferential partners. Developing Asian non-preferential suppliers appear to be performing better in the US market than free trade agreement partners. If preferential trade is faltering and trade disputes are on the rise, the question becomes whether the multilateral trading system can ride to the rescue before protectionist forces begin to strangle world trade. The failure of bilateral free trade agreements to act as a shock absorber suggests that a new global trade deal may be the way forward. The outcome is crucial as the US will need to expand net exports to restore growth and unwind its global debt obligations.
Preferential trade agreements rules of origin textile safeguards market share and competitiveness