## WORLD TRADE CAN STILL DRIVE PROSPERITY

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**Canonical URL:** [WORLD TRADE CAN STILL DRIVE PROSPERITY](https://www.imf.org/-/media/files/publications/fandd/article/2023/june/md-ngozi-okonjo-iweala.pdf)

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### Trade’s contribution to global prosperity
- Fewer than 1 in 10 of the world’s people are poor, a fourfold reduction since 1990, as low- and middle-income countries have doubled their share of global trade.
- Pivotal to this leap in global income is a twentyfold increase in international trade since 1960.
- Three core ways trade is crucial:
  - Increases productivity by expanding the international division of labor.
  - Enables export-led economic growth by providing access to foreign markets.
  - Bolsters economic security by giving firms and households outside options when negative shocks hit.
- Recent crises illustrated trade’s role in resilience:
  - During the pandemic, trade and supply chains were vital for production and distribution of medical supplies, including vaccines.
  - During the war in Ukraine, deep and diversified international markets for grain enabled import-dependent economies to make up shortfalls. For example, Ethiopia lost all its wheat imports from Ukraine but now sources 20 percent of its wheat shipments from Argentina—a country from which it had not imported any wheat before.

### Costs and risks of fragmentation
- A scenario in which the world divides into two separate trading blocs could lead to a 5 percent drop in global GDP, World Trade Organization (WTO) research shows.
- The IMF estimates global losses from trade fragmentation could range from 0.2 to 7 percent of GDP.
- Costs may be higher when accounting for technological decoupling.
- Emerging market economies and low-income countries would be most at risk due to the loss of knowledge transfer.
- Fragmentation risks reducing economic efficiency, concentrating foreign direct investment among geopolitically aligned countries, and making short supply chains more vulnerable to localized shocks.

### Inclusivity, domestic policies, and re-globalization
- Trade has reduced poverty and inequality between countries but has left many behind:
  - People in rich countries hurt by import competition.
  - People in poor countries unable to tap into global value chains and often exposed to environmental degradation and conflict over resources.
- Addressing underlying causes of discontent requires domestic policies rather than trade interventions:
  - Well-designed social safety nets.
  - Greater investment in training.
  - Policies in credit, housing, and infrastructure that help workers move across industries, occupations, and companies.
- The current push toward more diversified supply chains creates opportunities to integrate more countries and communities into global value chains—“re-globalization”—which can improve supply resilience, growth, and development.

### Trade, the green transition, and digital/services trade
- Many global problems, including the climate crisis, will not be solved without international trade.
  - Trade is needed to get low-carbon technology and services everywhere they are required.
  - Open and predictable trade lowers the cost of decarbonization by expanding market size, enabling scale economies, and learning by doing.
- Example: the price of solar power has fallen by almost 90 percent since 2010; 40 percent of this decline has come from scale economies made possible partly by trade and cross-border value chains, the WTO has estimated.
- Trade in services and digital trade are expanding rapidly:
  - Global exports of digital services such as consulting delivered by video calls reached $3.8 trillion in 2022, or 54 percent of total services exports.
  - A group of nearly 90 WTO members, including China, the EU, and the US, are negotiating basic rules on digital trade to make trade more predictable, reduce duplication, and cut compliance costs that weigh heaviest on the smallest businesses.
- Multilateral cooperation and common standards could speed the green transition while preventing market fragmentation and minimizing negative policy spillovers.
- Bringing more small and women-owned businesses into global production networks—digital and otherwise—would spread trade gains more broadly.

### Cooperation, institutions, and policy agenda
- Despite geopolitical tensions, meaningful cooperation on trade remains possible:
  - All WTO members came together last June to deliver agreements on curbing harmful fisheries subsidies, removing barriers to food aid, and enhancing access to the intellectual property behind COVID vaccines.
  - Governments can build on those successes at the WTO’s next ministerial meeting in February 2024.
- Recent work by international institutions points to ways to defuse tensions in sensitive areas such as subsidies through data, analysis, and common perspectives on policy design.
- The IMF has a mandate to support the balanced growth of international trade.
- The WTO remains the only forum that brings all economies together to advance trade reform.
- Policy priorities moving forward include updating global trade rules to accommodate trade that is inclusive, green, and increasingly digitally and services driven, while reinforcing the multilateral trading system to safeguard benefits and prevent losses.

*Kristalina Georgieva and Ngozi Okonjo-Iweala, Finance & Development, June 2023.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2023/june/md-ngozi-okonjo-iweala.pdf_