Trade in Turmoil

IMF Blog, June 1, 2023

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Article title: "Trade in Turmoil"
Author: Gita Bhatt
Date: June 1, 2023
Central premise: The liberal international trading system that underpinned peace and prosperity since the end of the Cold War is fragile and under strain from geopolitical tensions, technology shifts, and changing policy priorities.
Opening quote preserved: “Globalization is a fact of life. But I believe we have underestimated its fragility,” United Nations Secretary-General Kofi Annan told the World Economic Forum almost a quarter century ago.

Geopolitical tensions, including Russia’s war on Ukraine, contributing to fragmentation of global trade.
Policymakers seeking to reduce reliance on precarious global supply chains for domestic-industry protection and national security.
Technology and policy priorities reshaping trade: climate change, digitalization, and an increasing role for services.
Strategic efforts to secure supplies of critical inputs such as computer chips and rare earths.

Mounting disillusionment with globalization can lead to:
- Protectionism that "would make the world less resilient and more conflict-prone" (Pinelopi Goldberg, Yale).
- Industrial policies and subsidies that "could leave countries worse off" (Doug Irwin, Dartmouth).
- Regional trade alliances moving toward less integration and more discrimination (Michele Ruta, IMF).
- Smaller economies being sidelined as the world fragments into rival trading blocs; some may choose to remain nonaligned (Ngaire Woods, Oxford).

Appeals to preserve and strengthen multilateral institutions:
- Kristalina Georgieva (IMF) and Ngozi Okonjo-Iweala (WTO) call for countries to "keep faith in trade" and to strengthen multilateral institutions.
Calls for a new political consensus to reconcile competing demands on the global trading system while accounting for structural changes in the global economy.
Emphasis that reinforcing the existing trading system is necessary but insufficient; proactive agenda-setting is required.

Elements recommended for a forward-looking agenda:
- Inclusive trade policies.
- Green trade strategies to address climate priorities.
- Digital trade frameworks to reflect technological change.
- Greater emphasis on services as a driver of trade growth.
Direct imperative preserved: “we cannot afford to stand still.”

The issue of Finance & Development Magazine explores these themes in greater depth and aims to provide new insights and "food for thought" for readers.
Closing note of thanks to readers: "Thank you as ever, for reading us."

Gita Bhatt, June 1, 2023 — Trade in Turmoil