Can re-globalization fix global trade fractures? WTO believes so

Growing geopolitical tensions are breaking down trading ties, the World Trade Organization (WTO) said in its World Trade Report as it sought a re-globalization strategy to rebuild trade links.

The latest edition of the report presents new evidence of the benefits of broader, more inclusive economic integration as early indications of trade fragmentation threaten to unwind growth and development.

The flagship publication, released on Tuesday, features findings on how re-globalization — or increased international cooperation and broader integration — can support security, inclusiveness, and environmental sustainability.

“The post-1945 international economic order was built on the idea that interdependence among nations through increased trade and economic ties would foster peace and shared prosperity,” WTO director-general Ngozi Okonjo-Iweala said in the foreword to the report.

“For most of the past 75 years, this idea guided policymakers, and helped lay the foundation for an unprecedented era of growth, higher living standards and poverty reduction,” she said, adding that today, “this vision is under threat, as is the future of an open and predictable global economy.”

“The WTO is not perfect — far from it. But the case for strengthening the trading system is far stronger than the case for walking away from it,” Okonjo-Iweala added.

WTO’s calculations show that goods trade flows between two hypothetical geopolitical blocs — based on voting patterns at the UN General Assembly — have grown 4-6% more slowly than trade within these blocs, the report said, while adding that despite these findings, global trade continues to thrive, implying that talk of de-globalization is on balance still not supported by the data.

“The main conclusion is that we need to embrace trade instead of rejecting it if we want to overcome the most pressing challenges of our time,” WTO chief economist Ralph Ossa said.

“In particular, the report makes the case for extending trade integration to more economies, people, and issues, which is a process we call ‘re-globalization,” he added.

The report also examines the relationship between economic integration and three major challenges facing today’s global economic order: security and resilience, poverty and inclusiveness, and environmental sustainability — areas in which arguments have gained ground that globalization has not delivered as expected or exposes countries to excessive risks.

Global trade and international cooperation are still intact despite the narrative of decoupling and increasing trade disputes following the Ukraine war, which impacted $85 billion worth of trade, the report said.

Negative headlines are obscuring more optimistic global trade patterns as even trade between the US and China reached its highest level last year despite escalations of trade related tensions between them since 2018 onwards, the report added.

The report underlined the threats to the multilateral trading system from the Ukraine war and fragmentation of trade along geopolitical lines and among likeminded countries.

Reviewing the evidence, the report makes the case that “re-globalization” is a more promising solution to these issues than fragmentation.

The report shows that trade openness is strongly linked with a reduced likelihood of conflict and has led to sharp declines in poverty for over four decades. Also, technology improvements enabled by trade have had a strong impact in reducing carbon emissions.

WTO also emphasizes the need for more trade and more cooperation to effectively address the major issues that policymakers are facing the world over — from security to inclusiveness to climate change. A re-invigorated and reformed WTO can play a central role in tackling these challenges, it added.