GENEVA – The only thing that is certain about the future is uncertainty. And that is true of the future of trade as well.
Despite repeated prior warnings of a possible global pandemic, COVID-19 took the world by surprise. The impact on trade was swift and dramatic. In the second quarter of 2020, when much of the world was under lockdown, the volume of global merchandise trade plunged by 15% year on year — the type of sharp decline rarely seen outside of wartime.
Few would have guessed then that by the first quarter of 2021, less than a year after the pandemic began, trade volumes would surpass pre-pandemic levels and reach new record highs. Governments’ restraint in the use of protectionist trade measures, together with large-scale fiscal and monetary support, helped drive economic recovery. In October 2021, the World Trade Organization raised its forecast for growth in global-merchandise trade in 2021 to 10.8% — up from 8% previously — and to 4.7% in 2022.
Policymakers don’t know whether the next major global crisis will be financial, climate-related or caused by a cyberattack, another pandemic or something else. But if the past is any guide, we can be certain that trade and international economic cooperation will help us weather whatever crisis comes our way.
During the pandemic, for example, trade has been a force for good. Despite initial disruptions, some ongoing export restrictions and supply-chain disruptions, trade has provided a lifeline in terms of food and medical supplies. In 2020, even as the overall value of global merchandise trade declined by 7.4%, trade in medical goods increased by 16% — and trade in personal protective equipment by nearly 50% — while agricultural trade remained stable. Supply chains helped ramp up production of urgently needed goods, so that previously scarce and expensive protective face masks, for example, became abundant and affordable. Quite simply, trade saved lives.
As scientists developed safe and effective COVID-19 vaccines at record speed, multi-country supply chains came together to provide the specialized inputs and capital goods needed for large-scale production. The supply chains for Pfizer/BioNTech’s and Moderna’s COVID-19 vaccines involve 19 countries, while those of Oxford/AstraZeneca and Johnson & Johnson encompass 15 and 12, respectively. While vaccine production remains far below the level that is needed, particularly for people in low-income countries, it is hard to see how the world could have administered the billions of doses it has without open trade.
The WTO has responded to the pandemic by working with COVID-19 vaccine manufacturers and all other stakeholders, including distribution companies, NGOs and regulatory agencies to keep supply chains functioning and boost vaccine output. In the longer term, we need to diversify global vaccine production so that supplies are more resilient and equitable.
Trade has an important role to play in addressing big global challenges, from climate change to pandemic preparedness. But for the WTO to continue to deliver on its founding objectives — to enhance living standards, create jobs and support sustainable development — its rulebook needs to be reformed and updated to reflect changing business realities and social and environmental imperatives.
Three trends shaping the future of trade are clearly discernible. First, as the pandemic has highlighted, services and the new digital economy will become increasingly important. Even before the COVID-19 crisis, services trade — much of it digitally-enabled — was growing much faster than trade in goods. Between 2010 and 2019, global exports of commercial services increased by 57%, while merchandise exports rose by 25%.
And for many businesses, including micro, small and medium-size enterprises, e-commerce has been a lifesaver since the pandemic began. Everyone knows how Amazon and China’s Alibaba have benefited commercially from the crisis. But African e-commerce platforms like Jumia also have boomed, with the continent-wide value of online payments nearly doubling between the first half of 2019 and the first half of 2020.
But more can and must be done to stimulate both trade and the innovations that advance it. Closing the digital divide would make the power of the internet available to all. New international frameworks for services and digital trade would enhance predictability and lower regulatory costs, creating new opportunities for businesses of all sizes. Plurilateral negotiations at the WTO on e-commerce and streamlining domestic regulation of services have advanced rapidly, bringing important agreements within reach.
Second, there is absolutely no doubt that the future of trade must be green in order to respond to problems of the global commons like the sustainability of the oceans and climate change. Younger generations — tomorrow’s producers and consumers — insist on it.
Many governments have committed to achieving net-zero greenhouse-gas emissions by 2050, and the WTO can maximize the potential of trade to help meet that goal. The International Energy Agency and the European Commission estimate that reaching net zero by mid-century could cost about 4.5% of global GDP. Rapid increases in investment in green technologies could lead to supply shortages and bottlenecks. But open, predictable trade would help reduce any “greenflationary” pressures that risk raising the cost of emissions mitigation.
Specifically, reviving negotiations at the WTO on liberalizing trade in environmental goods and services would help lower the cost of achieving carbon neutrality. The last such initiative was shelved in 2016 because politics trumped the global public interest. We must now try again.
In addition, fragmented approaches to carbon pricing are almost certain to become a source of trade tensions. The World Bank has identified 64 carbon-pricing instruments at the subnational, national, and regional levels, and three scheduled for implementation, with prices across industries varying from less than $6 per ton to $918 per ton. Here, the WTO and other international organizations can develop common methodologies for thinking about the carbon embodied in traded goods.
Lastly, trade must become more inclusive, both across and within countries. That means extending its benefits to poorer economies, and to the poor people in wealthier countries who were mostly left out of global supply chains in the 30 years prior to the pandemic. Firms are now shifting operations to countries such as Vietnam, Laos, Cambodia, Turkey, Bangladesh and Ethiopia in order to reduce production costs, diversify risks, and be closer to customers. We need to extend this “re-globalization” to hitherto poorly integrated parts of Africa, Asia and Latin America.
We also need to expand opportunities for people and firms in all countries — and especially women and smaller businesses — to connect to global supply networks. Domestic social, educational, and economic policies have an indispensable role to play in ensuring that people are able to benefit from economic change, whether this results from trade or technology.
Trade can help us face whatever the future has in store. But this will require trade policies that deliver for people, or else we will face more angry backlashes that offer no solutions to genuine economic grievances. And a reformed and revitalized WTO has a key role to play in ensuring people-centric trade.
Ngozi Okonjo-Iweala, director-general of the World Trade Organization, is a former finance minister and foreign minister of Nigeria. © Project Syndicate, 2021
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