A challenge for the 2023 trade outlook is not only slowing global growth but also the uncertainty surrounding those statistics. The war in Ukraine, concerns about COVID and fragile supply chains have caused many nations to rethink their approach to trade and question the future of globalization.
The World Trade Organization and others have warned that deglobalization would negatively impact the world and especially emerging economies. The question for global leaders is how to create a new agenda for global growth.
Speaking at the World Economic Forum Annual Meeting 2023 at a session on trade, growth and investment, Ngozi Okonjo-Iweala, Director-General of the WTO, said: “We say the future of trade is services; it’s digital; it’s green. And it should be inclusive.”
Many nations have seen a push to relocate manufacturing closer to consumers’ demand, after supply shocks associated with port blockages, the war in Ukraine and the pandemic. Moreover, concerns about national security have caused many nations to question their over-reliance on certain countries for critical goods and services, such as European dependence on Russian energy.
For the United States, Mexico is likely to be a major beneficiary of the US reconfiguration of supply chains, given Mexico’s educated workforce, low wages, railway transport and pro-business political climate, noted Laurence D. Fink, Chairman and CEO of BlackRock. “But Mexico is not going to be the sole beneficiary of that change,” he added, citing Eastern Europe, Turkey, Indonesia and other parts of South-East Asia as well.
Okonjo-Iweala said the future of trade must also prioritize inclusivity. As many countries prioritize national security in their trade policy, there is a risk that “friend-shoring” would distribute the gains of economic growth unequally. “When we talk of ‘friend-sharing,’ I don’t know who is a friend,” he said. “I don’t ever hear countries in Africa mentioned.”
Creating a trade agenda that prioritizes inclusivity and decarbonization is a major priority. Many European governments have welcomed the recent embrace of sustainability in US economic policy. “The world can only be happy that the United States has moved to the right side of the aisle” on climate, said Alexander De Croo, Prime Minister of Belgium.
He noted that European leaders have concerns over the specifics of the recent US legislation but, overall, the positive step gives Europe the opportunity to focus on its specific advantages, such as research facilities and long-term investments in wind energy. Without such coordination, there is a risk that Europe and the US simply compete to provide more subsidies and tax breaks for business.
Industrial policy has become a major focus for many nations rethinking their approach to trade. “Five years ago, [industrial policy] was not a very sexy topic. Today it’s top of the agenda,” said De Croo. Medical products, solar panels, silicon chips and digitization infrastructure are among the industries being overhauled due to new pressures to increase resilience and national security.
Ensuring that sustainability remains at the top of the global trade agenda will require coordination with multilateral agencies. As many nations seek out bilateral trade agreements, there is a risk of global trade splintering into trading blocks. Promoting a trade agenda that is fair, inclusive and sustainable will require institutions such as the WTO to establish clear ground rules for all nations.
German Vice-Chancellor Robert Habeck noted that Germany is saying “yes” to bilateral trade agreements, but ultimately, “we have to stick to the idea of multilateral institutions.”
