Economic research and trade policy analysis

This chapter shows that, despite difficulties in the global trade policy landscape, global trade flows have been resilient and continue to evolve in a direction that is more sustainable and inclusive. Narratives surrounding the benefits of globalization have turned more sceptical in the past decade. These narratives have started to reflect in global trade as the first policy-driven fractures appear in the system. Yet, the digital revolution continues to promote economic integration by facilitating trade in goods and, even more so, in services. There is still significant potential for trade to contribute further to the growth of the world economy, and to bring further benefits to developing economies via the expansion of global value chains. However, if the untapped potential of new trade flows is to be accessed, policies must remain outward-looking.

This chapter examines the complex interplay between trade and environmental sustainability. It evaluates the potential risks associated with a fragmented approach to climate change and other environmental challenges, and it explores the benefits of re-globalization – or greater international cooperation – for sustainability in the context of various types of environmental policies and their cross-border effects. The chapter also emphasizes the critical importance of multilateral cooperation in enabling effective environmental protection while fostering equitable global growth.

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. 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. Today this vision is under threat, as is the future of an open and predictable global economy.

A series of crises over the past years has changed the perceptions about trade and interdependence. What used to be considered as critical to economic progress and security is now sometimes perceived as a source of risk that needs to be limited. Moreover, security concerns are no longer exclusively expressed in relation to conflict but encompass the much wider notion of economic security. As a result, security concerns percolate through trade policy more widely. This chapter highlights that despite disruptions in global supply chains, trade remains a source of security, especially when embedded in a multilateral rules-based system. It argues that fragmentation would weaken security and increase the likelihood of conflict, while re-globalization is a more promising avenue to strengthen security going forward.

For almost seven decades now, economies around the world have been opening their markets to each other, recognizing that interdependence and cooperation create shared prosperity. However, severe challenges, such as the financial crisis of 2008-09, the COVID-19 pandemic and the war in Ukraine, now threaten to undermine this vision, highlighting a number of risks inherent in a globalized world. As a result, some have begun to question the benefits of globalization. The implication of this way of thinking is a more fragmented, less integrated world. Fortunately, this has not happened yet. There is still time to act, but, as this report shows, the changing narrative on globalization has already translated into heightened tensions and first signs of geoeconomic fragmentation in trade.