The World Trade Organization (WTO) has come out against trade protectionism as risks to the trade forecast remain substantial, saying that protectionism neither protects the overall economy nor promotes overall inclusiveness within an economy.
In its World Trade Report 2024 published yesterday, the WTO noted increased protectionism and unilateral policy measures, saying that trade might be starting to fragment along geopolitical lines amid geopolitical tension and the backdrop of the climate crisis.
The WTO says openness to international trade can drive economic growth but many low- and middle-income economies struggle to integrate in world trade or diversify.
The report emphasises the need for a comprehensive strategy that integrated open trade with supportive domestic policies to make trade more inclusive, such as vocational training, unemployment benefits, education for a more skilled and mobile workforce, and a competition policy to ensure consumers benefit from lower prices, reliable infrastructure and well-functioning financial markets.
Examining how international trade had contributed to making the global economy more inclusive, the report showcases data establishing a strong link between trade participation and the narrowing of income disparities among economies.
It noted that low- and middle-income economies that have lagged behind generally tend to engage less in international trade, receive less foreign direct investment, rely more on commodities, export less complex products and trade with fewer partners.
“Less trade will not promote inclusiveness, nor will trade alone,” WTO chief economist Ralph Ossa said.
“True inclusiveness demands a comprehensive strategy – one that integrates open trade with supportive domestic policies and robust international co-operation.”
Nonetheless, the WTO report says global trade growth is expected to pick up gradually over the next two years as lower inflation and rising incomes in advanced economies lift real wages and boost demand for goods, including imports.
According to the WTO’s forecast, the volume of merchandise trade is expected to increase by 2.6% in 2024 and 3.3% in 2025, following a 1.2% contraction in merchandise trade volume in 2023.
The outlook is also positive for commercial services trade, and digitally delivered services in particular, which rose 51% in value terms between 2019 and 2023
If the WTO’s trade forecast for 2024 is realised, Asia will make the biggest contribution to trade growth over the next two years.
The region is expected to add around 1.3 percentage points to the projected 2.9% growth in world exports in 2024, or around 45%. On the imports side, it should add 1.9 percentage points to the anticipated 2.3% growth in world imports, or around 81%. Other regions should make smaller contributions to import demand but all are expected to be positive.
However, the WTO warns that risks to the trade forecast were substantial, including rising protectionism, increasing geopolitical tension and regional conflicts in the Middle East and Europe.
It says other downside risks to the forecast include commodity price shocks and climate-related weather incidents, while there was also some upside potential if falling inflation allows central banks to reduce interest rates although timing rate cuts correctly will be challenging for policymakers.
WTO director-general, Ngozi Okonjo-Iweala, said these were troubling times for global trade.
However, Okonjo-Iweala said there were exciting opportunities within these challenges.
“Opportunities to harness digitalisation to spur growth and job creation. Opportunities to use trade to enhance global food security and accelerate the push towards net-zero emissions. Opportunities to spread the benefits of trade to more people and countries,” she said.
“Despite trade tension, political uncertainty and shocks like Covid-19, world trade has been remarkably resilient in recent years. The value of total goods and commercial services trade in 2023, at $30.4 trillion, was close to record highs. Merchandise trade volumes at the end of 2023 were 6% above their pre-pandemic peak in 2019, while the value of commercial services trade was up 21% between 2019 and 2023 – and by more than 50% for trade in digitally-delivered services.
“Perhaps the biggest takeaway from the report is its reaffirmation of trade's transformative role in reducing poverty and creating shared prosperity — contrary to the currently fashionable notion that trade, and institutions like the WTO, have not been good for poverty or for poor countries, and are creating a more unequal world.”
BUSINESS REPORT