## A Way Forward for Global Trade

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**Canonical URL:** [A Way Forward for Global Trade](https://www.imf.org/-/media/files/publications/fandd/article/2023/june/froman.pdf)

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### Context and framing
- Author: Michael Froman; former US trade representative.
- Personal anecdote framing: 2013 appointment and explanation via labels “Made in Mexico. Made in Bangladesh. Made in Cambodia.”
- Central premise: Global trade is evolving—facing backlash and nationalism yet continuing to grow—and requires reenvisioning to address emerging challenges, notably the convergence of climate and trade policies and limits of multilateralism.

### Recent policy developments and numeric facts
- Inflation Reduction Act (IRA):
  - Became law in August (year implied by context).
  - Includes $400 billion in climate-related spending over a decade.
  - Incentivizes electric vehicle purchases with a $7,500 consumer tax credit.
  - Subsidizes US-based manufacturers to produce clean tech and green energy.
- Carbon Border Adjustment Mechanism (CBAM):
  - European Union measure that goes into effect in October (year implied by context).
  - Will impose a fee on imported products from manufacturers in countries that do not have comparable carbon pricing mechanisms.
- WTO founding year: 1995.
- Notable multilateral WTO agreements referenced: the Trade Facilitation and the Fisheries Subsidies agreements.

### Key findings and analysis
- Global trade dynamics:
  - Trade liberalization and globalization previously: created efficient supply chains, lifted hundreds of millions of people out of poverty, and reduced prices for consumers.
  - Backlash: concerns that liberalization and offshoring hollowed out industry in developed nations, prompting more nationalistic policies.
  - Result: Some countries retreated from liberalization negotiations; others, particularly in Africa, continue to advance trade integration.
  - Corporate response: firms are re-evaluating supply chains for security, resilience, and redundancies—manifesting as onshoring, nearshoring, and friend-shoring.
- Convergence of climate and trade:
  - Climate and trade policies, once separate regimes, are now converging and sometimes conflicting.
  - Unilateral climate-related measures by major economies (IRA, CBAM) may strengthen action but also raise tensions:
    - IRA criticized by some US non-free-trade-agreement partners as discriminatory and potentially redirecting clean-energy investment flows.
    - CBAM raises concerns about complexity in measuring emissions and comparing carbon pricing mechanisms and potential exploitation for protectionist purposes, including against developing economies.
- Limits of multilateralism and political economy constraints:
  - WTO has been slow or unable to fully reach multilateral agreements with few exceptions.
  - Lack of political consensus among major economies about the goals and role of the global trading system impedes institutional reform.
  - Domestic politics—populism, nationalism, nativism, and protectionism—are real forces that cannot be ignored when designing trade policy.

### Questions needing political and policy answers
- What should the global trading system prioritize:
  - Economic efficiency vs. national industrial agendas vs. economic development?
  - Labor and environmental issues inclusion?
  - Leveling the playing field, disciplining state-owned enterprises, and treating subsidies?
- What role should the WTO play in creating a rules-based system and enforcement mechanisms?
- Can major economies collaborate on climate-trade questions or will unilateralism prevail?

### Policy direction and recommendations
- Convene substantive conversations among leaders of major economies to build political consensus on the global trading system’s objectives and on WTO reform prerequisites.
- Recognize domestic political constraints and address populism, nationalism, nativism, and protectionism in designing trade rules—do not ignore them.
- Encourage coalitions to set standards where multilateral consensus is absent:
  - Use open plurilateralism—agreements among countries willing to go above the lowest common denominator and live up to higher standards—to advance trade issues.
  - Leverage regional and bilateral agreements that introduced high standards (example frameworks cited include the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the United States-Mexico-Canada Agreement) as models for moving forward.
- Promote public-private collaboration on complex emerging areas such as the digital economy (digital services, data, privacy, cybersecurity), while guarding against unilateral actions that could increase trade friction.

### Bottom line
- Globalization is not dead but is at an inflection point requiring renewed political consensus and innovative institutional approaches—particularly open plurilateralism—to reconcile trade, climate, national policies, and technological change.

*Source: Michael Froman, "A Way Forward for Global Trade," Finance & Development, June 2023.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2023/june/froman.pdf_