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Joint Report Defends Global Trading System, Urges Countries to Address Those “Left Behind”

Posted April 11, 2017

Prompted by concerns about the future direction of U.S. trade policy under the Trump administration and a notable rise in protectionist sentiment around the world, a report published yesterday that was jointly produced by the World Trade Organization (WTO), World Bank, and the International Monetary Fund (IMF) argues that a strong, rules-based global trading system centered on the WTO remains essential to advancing global economic growth.

Warning that the role of trade in the global economy is presently at a “critical juncture,” the three multilateral bodies say that while increased trade integration and the opening up of markets had until recently been a key driver for economic growth in both advanced and developing economies, various factors over the past decade, including a slowdown in the pace of trade reform, a post-crisis uptick in protectionism, and the risk of “further reversals” have conspired to act as a drag on trade, resulting in a situation that “is leaving too many individuals and communities behind.”

“Domestic policies to address trade-related adjustments are critical,” the groups write in the report, subtitled “the case for trade and for policies to facilitate adjustment.” Maintaining that technological change rather than trade was mainly responsible for job losses in certain sectors or regions in advanced economies, the report concedes, however, that the growing protectionist sentiment in hard-hit communities is an understandable reaction and says there are “legitimate reasons for discontent,” noting that “adjustment to trade can bring a human and economic downside that it is frequently concentrated, sometimes harsh, and too often become prolonged.”

“It need not be that way,” says the report, which encourages governments to make trade part of a broader economic solution rather than, as has too often been the case in recent years, merely treating it as a convenient political scapegoat. “With the right policies, countries can benefit from the great opportunities that trade brings and lift up those who have been left behind.”

Unemployment insurance and other “passive” labour market policies are necessary, the authors say, listing examples such as “job search assistance, training programs, and, in some situations, wage insurance.” But more proactive approaches focusing on areas beyond temporary safety net solutions are also needed. Education systems that “prepare workers for the changing demands of the modern labour market” should also be developed, as should measures to support competitiveness and productivity growth. Such policies “ease adjustment to trade, as well as strengthen overall economic flexibility and performance,” the report states, while at the same time stressing that  although some people are negatively affected by trade, freer commerce and open borders have nonetheless provided a net positive to the international economy.

“Trade openness, underpinned by the expansion of the multilateral trading system, has brought about higher productivity, greater competition, lower prices, and improved living standards. On the consumption side, open trade has led to wider choices and lower prices of many goods and services, benefitting especially lower-income households who consume a disproportionately higher share of tradeable goods and services.”

In order to counter the “increased skepticism over open trade in some quarters” that has been spurred by “a prolonged period of disappointing economic growth and inadequate attention to those left behind by forces such as trade, globalization and technology,” the multinational groups urge world leaders to not only better communicate the various benefits of trade, but also to do more in terms of “sharing these benefits with those affected by trade-related dislocations.”