Related News

Global trade set to bounce back after sluggish 2023: WTO

Green shoots signal brighter trade picture for 2024: UN

WTO advances fossil fuel subsidy reform plans

WTO warned of “historic setback” as digital trade pact hangs in the balance

Authorities urged to target refineries as Russian-origin fuel imports soar

The World Trade Organization (WTO) says there is growing evidence that geopolitical tensions are damaging trade flows, raising concerns of “a more fragmented world dominated by regional trade blocs”. 

Since Russia’s invasion of Ukraine, policymakers are increasingly turning to trade restrictions in order to ensure food security, the WTO says in its World Trade Report 2023, published this week. 

At the same time, geopolitical tensions – typified by growing hostility between the US and China – are resulting in a “tit-for-tat escalation of import tariffs”. For instance, the US now imposes an average import duty of over 19% on Chinese imports, while China charges more than 21% on imports from the US. 

The WTO says this trend could result in a fragmented, de-globalised world, and calls for efforts to support open trade as a driver of economic security and peace. 

“While trade continues to thrive in many ways, trade tensions are rising, and first signs of fragmentation are emerging,” said chief economist Ralph Ossa at the report’s launch event on Tuesday. 

WTO director-general Ngozi Okonjo-Iweala adds that 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”. 

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

According to the report, there has been a noticeable shift towards sourcing goods from nations that are geographically closer or more closely politically aligned – practices known as nearshoring and friendshoring – since the onset of war in Ukraine 

The report splits trading nations into two blocs, based on similarities in how they vote at the UN General Assembly. It finds goods trade between nations within the same bloc has grown 4–6% more quickly than trade between nations from different blocs. 

Similarly, foreign direct investment is found to be “substantially lower” between geopolitically distant partners. 

At the same time, the number of trade restrictive measures introduced at national level continues to grow. 

More than two-thirds of restrictive measures that were introduced on food, feed and fertiliser exports at the start of the Ukraine conflict remain in place, affecting flows worth US$85bn, while the number of trade concerns raised with the WTO has more than doubled since 2020. 

Fearful of a “downward spiral” in trade relations, the WTO warns: “Such a development is likely difficult to reverse. Once in place, trade policy changes alter the political economy balance between import-competing and export-oriented interest groups, making it difficult to turn back.” 

The report reiterates warnings from the WTO last month, when it said geopolitical tensions, energy insecurity and the risk of financial instability were resulting in a gloomy outlook for trade flows, despite year-on-year growth.  

However, the report says de-globalisation is far from a foregone conclusion. International trade is still “thriving”, it says, driven in part by growing trade in digital services and environmental goods, as well as an expansion of global value chains. 

The report argues that open trade, supported by a robust multilateral trading system, is vital in avoiding supply shortages as businesses and individuals have readier access to alternative options. 

Trade is also likely to reduce the risk of conflict, it says, because third parties that would be affected “have an interest in mediating these tensions”. 

The WTO says the emergence of digital technologies is allowing services, such as accounting, education and telemedicine, to be provided in new ways, fostering economic diversification. 

Its latest quarterly goods trade barometer, also published in August, found that a decline in trade volumes that started towards the end of 2022 appears to be coming to an end – though export orders remain weak.