Insights › International Trade - Foreword
Trade, like every other aspect of the economy, has been deeply affected by the global recession that started to emerge in the wake of the 2008 financial crisis. As this book goes to press, we are projecting a decline in world trade for the first time since 1982. Trade is not at the origin of the crisis, but since it binds economies closely together, it helps to spread developments from one country to another – the negative developments as well as the positive. Weakening consumption and investment reduce demand for exports, a matter of critical importance for most countries, and particularly those whose economic development strategies rely on export-led growth.
Given the need to tackle unemployment, the temptation for some policy makers and parts of the media is to argue that the priority is to protect the national economy by reducing imports, reserving government contracts for domestic firms, refusing to help companies who invest abroad, and so on. This approach is based on the seriously flawed premise that any country can rely solely on its own natural, economic and human resources to produce everything it needs, at a price its population can afford to pay.
In fact, national economies need international markets to produce and sell things. Most international trade is not in the goods we buy in the shops. It consists of the things needed to make these goods, ranging from the microprocessors and software in electronic equipment to the cereals in food. By making these more expensive, protectionism ends up making everybody pay more. Reducing the size of markets and making things more expensive damages the economic growth on which jobs and living standards depend. Experience has shown that international trade can make a major contribution to improving the living standards of people throughout the world. As this book points out, an increase in the share of trade in GDP of one percentage point raises income levels by between 0.9% and 3%.
So although an inward-looking, individualist approach may seem attractive to some in the short term, a co-ordinated international commitment not to engage in protectionist actions would produce a much more effective, longer-lasting means to reduce the damage from the current crisis. In fact, further trade liberalisation would be an even better option as part of a broader response to the crisis.
Of course, liberalising further, and even keeping open those markets that have already been liberalised, will require international co-ordination on a broad set of issues ranging from stimulus packages to financial sector reform to social protection. Still, liberal trade policy has an important role to play, reinforcing market-oriented solutions and establishing conditions for a more robust recovery than would have been possible otherwise. That said, progress requires compromise and trade-offs among various interests, and it tends to be hard won.
A multilateral system is the best way to ensure that all nations have a say in how trade is conducted. There is, however, substantial room for debate on the specifics of how to implement this. In practical terms, what can be done? Even in a relatively calmer economic climate in the first half of 2008, no agreement was reached on the World Trade Organization’s Doha Development Agenda despite a strong push by key stakeholders. Yet, concluding the Doha Round would be a significant contribution towards the confidence building needed to get the global economy moving in a healthy direction.
With strong political will, a deal could be reached on issues where substantial progress has already been achieved, including market access for goods and services, moves to facilitate trade, and steps to make sure that the least developed countries benefit more fully from globalisation. Trade liberalisation is not an end in itself though. It is part of a strategy to promote economic development and improve social welfare by making the world’s resources more readily available to all. And progress in trade liberalisation would send a strong signal that governments can successfully collaborate in a positive manner in response to the crisis.
This latest book in the Insights series tries to present the issues objectively, showing the benefits of openness, but also the limits to what trade and trade policy can achieve. As well as an introduction to the history of international trade and the mechanisms and institutions that shape trade today, the book also discusses the relationship between trade and a number of key issues such as employment, the environment and development. I hope that you will find the information presented useful, and the arguments stimulating.
Secretary-General of the OECD
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