Trade Realignment Could Elevate Costs, Risks, and Geopolitical Tensions, Says WTO Annual Report
As geopolitical pressures reshape international alliances, the World Trade Organization (WTO) warns that countries are increasingly favoring trade with allied nations over more efficient exporters. This shift is raising concerns about the future of a global economy founded on open and predictable trade practices.
The Geneva-based WTO revealed in its annual World Trade Report that while the overall value of global trade continues to grow, it is doing so at a quicker pace within allied geopolitical blocs. This realignment could lead to elevated costs and escalate international conflicts, the organization warned.
Ngozi Okonjo-Iweala, the WTO's Director-General, expressed concerns about the erosion of the post-1945 global economic framework, which was built on the principle of fostering peace and shared prosperity through international interdependence.
"Increasingly, we are seeing that the vision of a stable and open global economy is being compromised," Okonjo-Iweala stated. "The strategic realignment of trade flows poses not just an economic risk but also threatens the fabric of international peace and security."
The WTO's data revealed a slowdown in trade between two hypothetical geopolitical blocs, formed based on UN General Assembly voting patterns, especially since Russia's full-scale invasion of Ukraine in February 2022. The rate of trade within these blocs grew 4-6% faster than trade between them.
The report also highlighted a surge in countries invoking national security clauses to restrict trade in strategically vital goods and services, such as silicon chipmaking technology. Complaints about trade barriers have doubled since 2017, indicating increasing tensions in global commerce.
However, Okonjo-Iweala dismissed claims that "deglobalisation" is imminent. The value of world merchandise trade soared by 12% to $25.3 trillion in 2022, partly due to inflation resulting from rising commodity and fuel prices. Similarly, commercial services trade escalated by 15% to reach $6.8 trillion last year.
The report accentuated some bright spots in global trade, including a 3-percentage point increase in digital services exports by developing economies and a quadrupling of trade in environmental goods since 2000.
The WTO leader also called for "re-globalisation" as a way forward, urging the integration of more economies and sectors into global trade. Okonjo-Iweala emphasized that enhanced trade relations could help combat poverty, advance the fight against climate change through the diffusion of green technologies, and contribute to global security.
Trade ministers from WTO member states are set to convene in Abu Dhabi next February in a concerted effort to rejuvenate the organization and its role in fostering a balanced global trade system.
Okonjo-Iweala concluded, "While the WTO is far from perfect, the risks of abandoning the system far outweigh the benefits. The onus is on us to strengthen and uphold the tenets of international trade for a more secure and prosperous future."
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