IMF highlights the importance of open, stable and transparent trade policies for economic growth
The International Monetary Fund (IMF) has recently issued a paper reviewing the role of trade in its work, stating that open, stable, and transparent trade policies are essential for economic growth, resilience, and addressing key global challenges. The paper notes that open trade has been an integral part of the global policy agenda to bolster growth, lifting millions of people out of poverty and allowing them to raise their standard of living. Furthermore, diversification through trade is crucial for improving macroeconomic resilience, as highlighted during the COVID-19 pandemic.
Despite the numerous benefits that open trade brings, large global gains still remain to be derived from further trade reforms, especially in services and environmental goods needed to combat climate change. Together with domestic policies to help share the gains more widely, open trade can promote balanced growth and support cooperation on other global priorities, such as climate change, food and health security, and poverty reduction.
However, the IMF warns that the deteriorating global trade landscape poses risks to the current levels of prosperity. Trade tensions that have emerged in recent years have deep underlying causes. After rising sharply in the 1990s and early 2000s, the ratio of trade to GDP has been flat since around 2005. The lack of progress in traditional trade reforms and limited uptake of new opportunities in services and other emerging areas led to trade restrictions, trade-distorting subsidies, and other distortive policy measures that began to spread, particularly in the aftermath of the global financial crisis.
Moreover, recent trade tensions between China and the United States, the COVID-19 pandemic, and the war in Ukraine have further accelerated these trends. A weakened multilateral trading system has been ill-equipped to address these challenges, leading to a more fragmented trade landscape and heightened uncertainty for businesses, investors, and consumers alike.
The IMF stresses that more action is needed to revive the global trading system, reduce trade tensions, and create a more level playing field for businesses around the world. This requires a renewed commitment to multilateralism and international cooperation, coupled with a comprehensive set of policies to tackle the underlying causes of trade tensions, such as improving market access, addressing trade-distorting practices, and strengthening the rules-based system.
In particular, the IMF highlights the need to address the inequalities that have arisen from the current trade system and to ensure that the benefits of open trade are shared more widely. This will require policies that support workers who have been negatively impacted by trade liberalization, such as social safety nets and training programs to help them transition to new jobs. Moreover, it will also require a renewed focus on environmental sustainability and reducing carbon emissions, given the critical role that trade plays in this area.
Ultimately, the IMF paper serves as a timely reminder of the importance of open trade for global growth and prosperity, as well as the challenges that must be overcome to ensure that the benefits of trade are shared more widely. While the road ahead may be difficult, it is clear that renewed international cooperation and a comprehensive set of policies will be essential in achieving this goal and creating a more prosperous, sustainable, and equitable world.
