The writer is dean of the Paris School of International Affairs, Sciences Po
The emerging narrative from the war in Ukraine is that the surge in geopolitical risk will compound existing dissatisfaction with the global trade system and lead to fragmentation. Security will trump efficiency. Integration with like-minded partners will replace multilateralism. This narrative is neither right, nor desirable. There is no doubt that the ongoing conflict is reinforcing anti-trade prejudice. But is this a global trend? The short answer is no.
There is an appetite for trade integration in many parts of the world, especially developing countries. Proof is the expansion of World Trade Organization membership, the rising number of trade agreements and the profusion of large-scale regional initiatives such as the African Continental Free Trade Area and the Regional Comprehensive Economic Partnership. Even in advanced economies, surveys consistently show positive attitudes to integration, indicating that the opposition to trade may be more concentrated in fewer sectors or regions than commonly recognised.
That is not to deny that for many employees, economic conditions have worsened. But one wonders whether this is due to increased trade. If workers in Canada (or other rich countries) are doing better, even though they are vastly more exposed to trade than their US counterparts, it does not make sense to blame trade for the woes of American employees. The US has significant political levers available to improve life for American workers, and it is irresponsible not to use them.
Even if the mood has turned against trade, the laws of economics have not. Trade integration guided by the logic of comparative advantage is painful and efficient; trade disintegration will be painful and inefficient. Using trade and industrial policy to achieve reshoring, or to shift demand towards domestic production in the attempt to favour workers in advanced economies, will only lower productivity growth for all.
Companies will respond to the war in Ukraine by reassessing security risks and restructuring supply chains. But given the investments already made, the cost of alternatives, and factors such as wage differentials across countries, this process is likely to be gradual rather than sudden. Re-shoring or friend-shoring — confining global supply chains to allies — will require protracted government intervention, raising questions about its long-term sustainability.
The targeting principle suggests trade policy is not the proper instrument to deal with inefficiencies that are not caused by trade. Markets need non-market institutions. Trade agreements should expand their scope, as they have done in recent years, to allow for provisions on competition, environment, labour, gender and other issues. This would open markets and promote improvements in domestic policies to address inefficiencies.
More fundamentally, we should ask if fragmenting the trade system would ultimately help achieve non-trade goals such as environmental protection or national security. Fragmentation would make it harder for economies to undertake the huge investment needed to combat climate change. Competing systems would be likely to prioritise short-term gains over long-term environmental achievements. A fragmented trade system also lowers growth opportunities for developing countries, which will struggle to offset diminished demand from advanced economies. Restricting opportunities will only make the world more dangerous and unstable.
This is not the moment to divest from the WTO — quite the opposite. The WTO system was never about liberalisation for its own sake. It was about creating predictable rules and a framework for managing disputes and spillovers. It is clear that international progress will be difficult over the next few years. Advances in digital trade may initially be made regionally. This is not a problem, as long as countries keep investing in the multilateral system. Even in this scenario, the WTO system can provide rules of conduct and crucial enforcement mechanisms. The message for the upcoming WTO ministerial meeting is that global co-operation remains vital to protect against everything from climate change to recurring pandemics.
A return to 2015 is neither possible nor desirable. Some of the more hopeful assumptions of the 1990s and 2000s — that interdependence would not be weaponised, that economic convergence would foster political comity — were wrong. But we’re still better off in a world of international co-operation on corporate taxation, illicit capital flows, carbon pricing, and most importantly effective domestic policies to foster competitive markets with strong social safety nets. All these are preferable to a chaotic retreat from globalisation.
Source: Economy - ft.com
