The World Trade Organization (WTO) and others, yesterday, warned that deglobalization would negatively impact the world and especially emerging economies.
This is because the war in Ukraine, concerns about COVID and fragile supply chains have caused many nations to rethink their approach to trade and question the future of globalization.
Fragmentation and the development of new trading blocs therefore threaten to undermine economic growth and inclusivity
Consequently, leaders at the on-going World Economic Forum (WEF) Annual Meeting in Davos-Klosters, Switzerland, believe the challenge for the 2023 trade outlook is not only slowing global growth but also the uncertainty surrounding those statistics, and how to create a new agenda for global growth.
Speaking at a session on trade, growth and investment, Director-General of the WTO, Dr. Ngozi Okonjo-Iweala, said: “We say the future of trade is services; it’s digital; it’s green. And it should be inclusive.”
Many nations have seen a push to relocate manufacturing closer to consumers’ demand, after supply shocks associated with port blockages, the war in Ukraine and the pandemic.
Such fragmentation and the development of new trading blocs threaten to undermine economic growth and inclusivity
Moreover, concerns about national security have caused many nations to question their over-reliance on certain countries for critical goods and services, such as European dependence on Russian energy.
Okonjo-Iweala said the future of trade must also prioritize inclusivity. As many countries prioritize national security in their trade policy, there is a risk that “friend-shoring” would distribute the gains of economic growth unequally. “When we talk of ‘friend-sharing,’ I don’t know who is a friend,” she said. “I don’t ever hear countries in Africa mentioned.”
Promoting a trade agenda that is fair, inclusive and sustainable will require institutions such as the WTO to establish clear ground rules for all nations.
Creating a trade agenda
Creating a trade agenda that prioritizes inclusivity and decarbonization is a major priority and ensuring national security are among the goals that are shaping leaders’ approach to trade in 2023. Many European governments have welcomed the recent embrace of sustainability in U.S. economic policy.
“The world can only be happy that the United States has moved to the right side of the aisle” on climate, said Alexander De Croo, Prime Minister of Belgium.
He noted that European leaders have concerns over the specifics of the recent US legislation but, overall, the positive step gives Europe the opportunity to focus on its specific advantages, such as research facilities and long-term investments in wind energy.
Without such coordination, there is a risk that Europe and the US simply compete to provide more subsidies and tax breaks for business, he added.
Industrial policy has become a major focus for many nations rethinking their approach to trade. “Five years ago, [industrial policy] was not a very sexy topic. Today it’s top of the agenda,” said De Croo.
Industrial policy has become a priority for leaders rethinking supply-chain security for critical industries. Medical products, solar panels, silicon chips and digitization infrastructure are among the industries being overhauled due to new pressures to increase resilience and national security.
Leaders agree that ensuring that sustainability remains at the top of the global trade agenda will require coordination with multilateral agencies.
As many nations seek out bilateral trade agreements, there is a risk of global trade splintering into trading blocks. Promoting a trade agenda that is fair, inclusive and sustainable will require institutions such as the WTO to establish clear ground rules for all nations.
German Vice-Chancellor, Robert Habeck, noted that Germany is saying “yes” to bilateral trade agreements, but ultimately, “we have to stick to the idea of multilateral institutions.”
