International trade makes economies resilient

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The global trading system is under increasing pressure as it weathers disruption from the ongoing pandemic, trade disputes and Russia’s invasion of Ukraine. The American approach to trade is also questioned by some politicians and interest groups who consider international trade harmful to American workers.

In the wake of the 12th Ministerial Conference of the World Trade Organization (WTO), it is important to recognize that while these shocks and frustrations illustrate the real challenges facing global trade, trade liberalization has brought enormous benefits to workers, industry and consumers that should not be overlooked.

The resilience provided by international trade networks has proven particularly important in recent years, as WTO leaders have suggested.

Consider how “offshoring” was blamed for personal protective equipment (PPE) shortages early in the pandemic. In fact, U.S. production has always been sufficient for major N-95 mask makers to meet U.S. demand. But COVID-19 has increased US demand for N-95 masks 40-fold, from around 25 million in 2019 to around 500 million in 2020.

Public health experts had long warned of such a potential crisis, as in the 2005″National Pandemic Influenza Strategy,which called for new investments in PPE storage (and which federal budgets have never adequately funded). The focus on inventory is an acknowledgment that current production – whether domestic or foreign – cannot keep pace with pandemic demands.

Even so, international trade has proved a medium-term lifeline. While world trade fell by 7.6% in 2020, trade in medical goods increase by 16%. International trade has helped deliver much-needed medical supplies around the world, even as countries also strive to boost domestic production.

The latest IMF report World Economic Outlook believes that global supply chains are adaptable and resilient, suggesting that “policies such as reshoring are probably wrong”. The authors highlight the pandemic and note that international trade has played an important role in accelerating the global economic recovery. They warn that localizing production could leave countries ill-prepared for the next disruption.

A World Bank study had similar conclusions: “Policies that are pro-trade, not anti-trade, could prove essential to strengthen the recovery from the pandemic, support greater diversification and reduce extreme poverty”. The report estimates that policies that reject protectionist approaches will drive trade growth of 25% between 2019 and 2030; relocation policies would lead to a 22% decline and plunge 52 million people into extreme poverty.

To illustrate how protectionist policies reduce resilience, consider the global food crisis. Russia’s invasion of Ukraine and its blockade of Ukrainian Black Sea ports have disrupted world agricultural trade. Worse still, 31 countries imposed export bans or licenses at some point in the past four months, covering around 13% of all food traded globally (“global calorie markets”), according to the International Food Policy Research Institute. Fortunately, a number of these restrictions have been removed, and those in place now affect around 5% of global food trade. Despite this, these measures have prevented wheat, corn and other foodstuffs, of which Ukraine is a major global producer, from leaving the country.

Protectionist measures are thus wreaking havoc on an already delicate agricultural supply chain and harming all parties involved. Export restrictions and retaliatory measures exacerbate shortages by reducing global supply and driving up prices.Import-dependent nations face an additional risk of extreme food insecurity, and restricted-producing nations are unable to seize the opportunity to fill these gaps.

International investment also makes businesses and economies more resilient. Even as the deepest recession in a generation shed eight million jobs from the U.S. economy between 2007 and 2009, U.S. multinationals added 289,000 net jobs to the United States, according to the Bureau of Economic Analysis. the United States. They added an additional 2 million jobs to the United States between 2009 and 2013. The impact of the “Great Recession” was far more severe for companies with a purely domestic footprint.

Geographical diversity of suppliers can build resilience to future shocks, but eliminating trade and investment – ​​and relying on a limited number of domestic suppliers – can end up doing more harm than good.

Trade officials returned home after the WTO Ministerial Conference with a mixed bag of deliverables, but the lesson is the same: the world should invest in the multilateral trading system rather than walk away from it. Countries are more resilient when they trade than when they try to go it alone.

About the authors

Marie Kate Carter

Coordinator, International Policy, U.S. Chamber of Commerce

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