…Economic interdependence and international trade still key
Nghiinomenwa-vali Erastus
At the height of Covid-19, many countries limited their export of certain goods or chose
whom to sell to.
Currently the same behaviour is being observed of countries grouping themselves, and
putting up trade barriers.
As a result, countries such as Namibia that choose non-alignment in global politics and
have small domestic markets are caught in the midst.
The world's two leading economic leaders have sounded the alarm that "fragmentation
could be costly for the global economy," wrote Ngozi Okonjo-Iweala and Kristalina
Georgieva, in their latest piece titled World Trade Can Still Drive Prosperity for June
2023.
Okonjo-Iweala is Director-General of the World Trade Organisation (WTO), while
Georgieva is the Managing Director of the International Monetary Fund (IMF).
Observations are that rising geopolitical tensions are corroding away at globalisation,
with a more fragmented world and regionalism.
Conversation have even go loud as more countries contemplate on joining the BRICS
block, which consists of Brazil, Russia, India, China, and South Africa.
The two economic leaders wrote that a scenario in which the world divides into two
separate trading blocs could lead to a 5% drop in global GDP.
The IMF, meanwhile, reckons global losses from trade fragmentation could range from
0.2% to 7% of GDP.
The two leaders explained that costs may be higher when accounting for technological
decoupling.
"Emerging market economies and low-income countries would be most at risk due to
the loss of knowledge transfer," the two Okonjo-Iweala and Georgieva warned.
Post–World War II the world has moved from deglobalisation, extremism, and world
war, to thriving international trade with observed prosperity and stability.
However, the two economic leaders have observed the tide is turning against economic
interdependence and international trade.
Okonjo-Iweala and Georgieva explained that trade restrictions and subsidies increased
after the global financial crisis, and tensions escalated further as governments
responded to the Covid-19 pandemic and Russian war on Ukraine.
They accused some countries of "scrambling to secure strategic supply chains and
rushing into trade-distorting policies," adding that if taken too far, these measures may
open the door to alliance-oriented policies that reduce economic efficiency and fragment
the global trading system.
According to the two leaders, the observed fragmentation measures could backfire if
short supply chains end up more vulnerable to localised shocks.
With regard to fragmentation and regionalism, the two observed that foreign direct
investment is already increasingly concentrated among geopolitically aligned countries.
"Should we abandon the idea of trade as a transformative force for good? Our answer is
a resounding no!" the two stated, explaining that despite all the talk, trade has
continued to deliver even during recent crises.
"It has great potential to keep contributing to higher living standards and greater
economic opportunities for decades to come," they assured.
According to Okonjo-Iweala and Georgieva, there are at least three reasons
international trade is crucial for global prosperity.
First, it increases productivity by expanding the international division of labour.
Secondly, it enables export-led economic growth by providing access to foreign markets.
Thirdly, it bolsters economic security by giving firms and households valuable outside
options when negative shocks hit.
The two economic leaders highlighted the power of international trade as a source of
resilience that has become evident again during the war in Ukraine.
They say deep and diversified international markets for grain enabled economies
traditionally reliant on imports from Ukraine and Russia to make up shortfalls.
Ethiopia lost all its wheat imports from Ukraine but now sources 20% of its wheat
shipments from Argentina—a country from which it had not traded in wheat with
before.
Thus, reinforcing the trading system to safeguard the benefits and prevent losses is
importan,t konjo-Iweala and Georgieva submitted.
Furthermore, there is also a forward-looking trade policy agenda that responds to the
future of international trade, which the two envision to be inclusive, green, and
increasingly digitally and services driven.
Okonjo-Iweala and Georgieva are still hopeful saying that despite geopolitical tensions,
meaningful cooperation on trade remains possible.
They acknowledge that navigating trade policies through the current turbulent period is
challenging.
The two leaders have advised that keeping trade open and looking for new opportunities
for closer cooperation will be essential to build on existing gains and to help deliver
solutions to climate change and other global challenges. Email:
erastus@thevillager.com.na
