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How should the IMF respond?

As the IMF turns 80, its core macroeconomic mission still deserves to be pursued and prioritized. The ongoing corrosion of globalization—reinforcing and being reinforced by geopolitical fragmentation—increases the vulnerability of all but the largest economies to foreign economic shocks, arbitrary swings in current account balances, interruptions in access to dollar liquidity, and accumulation of unsustainable debt. The increasing politicization of international finance and commerce by China, the European Union, and the United States has, however, put at risk the IMF’s ability to assist member countries and limit exploitative behavior by the governments of the three largest economies. For the sake of global economic stability, the IMF must get out in front of these dangers.

But stability will not be achieved by broadening the institution’s remit in an effort to pander to the changing whims of the largest shareholders, though that response might be understandable as a short-term political approach. Instead, the IMF must emphasize its unique role as a multilateral conditional lender and a truth teller regarding international debt and monetary issues. This role justifies greater operational independence, along the lines of central banks.

First, the broader and more discretionary the core IMF agenda, the greater the vulnerability of member countries to the geopolitical machinations of large-economy governments and the market flows they influence—which is precisely the threat that is currently on the rise.

Second, broad consistency in both substance and process in dealings with member countries is critical to the legitimacy of the IMF’s decision making, especially when members are most vulnerable. Technocratic evenhandedness is essential to successful buy-in by all members over the long run, even at the expense of some local support in short run. Inconsistencies of the sort imposed by the US on successive programs with Argentina or by the EU’s “troika” role in the euro area crisis are likely to grow over time.

Third, although there are other international forums to address inequality, climate, and other global issues, only the IMF can be a quasi-lender of last resort and speaker of truth to economic power on debt and monetary issues. The IMF cannot put up substantial funds for longer-term development and global public goods—or mobilize private financing on an ongoing basis—as others can. It should be ready to trade its seat in these discussions for greater institutional (not just de facto) independence in its core mission.

We are likely at the early stage of a cycle of cross-border distrust among the big three economies feeding demands for self-reliance and then demanding that smaller economies choose sides. The IMF may have only a brief window to build its institutional strength before it is pressured recurrently to choose sides between major shareholders.

More central than ever

The IMF’s core macroeconomic mission is to address member nations’ vulnerabilities that arise through cross-border commerce and financial flows and manage the international monetary system that underlies those flows. In their recent assessment, Floating Exchange Rates at Fifty, Douglas Irwin and Maurice Obstfeld point out that many of the problems the IMF and the Bretton Woods agreements were designed to address are inherent to international finance. These problems remain, even though the postwar fixed exchange rate system was abandoned in favor of today’s non-system:

• Exchange rate flexibility allows for monetary independence, yielding low inflation, but still does not prevent sudden stops and financial crises.
• Foreign economic shocks are still transmitted, often with substantial effects on smaller and lower-income countries.
• Capital flows often drive large rapid fluctuations in current account deficits.
• Interruptions in the availability of dollar liquidity to member economies have major repercussions, sometimes causing financial crises.
• Self-insurance efforts by large-surplus economies—whether through currency manipulation or replacement of imports with subsidies and tariffs—reduce global growth and impose adjustments during recessions on others.

As a result, there is no getting away from crisis lending with conditionality when member economies lose access to financial markets or suffer capital flight. The IMF’s ability to provide credible conditional adjustment financing, cushion groups of economies from common economic shocks, and restore access to market liquidity while restructuring international debt obligations is therefore more, not less, central than ever.

Only the IMF can provide this support on a multilateral, nearly universal basis. Any other institution or bilateral intergovernmental arrangement offering emergency financing will give that lender prejudicial influence over the borrowing country.

Benefits of surveillance

Surveillance of spillovers from the misguidedly excessive self-insurance policies of the largest economies, if consistently pursued, has a good shot at benefiting the global economy. Small achievable changes in the policies of those economies can aid many significantly, boost IMF credibility, and reduce risk. Similarly, by seeking to coordinate on cross-border debt and monetary issues, the IMF can generate benefit by influencing small changes in (or offsetting) behavior by lenders and reserve currency issuers. The more independent the IMF, the greater its legitimacy in its interaction with members.

The IMF must also call China, the EU, and the US to account through surveillance of their increasingly political and bullying control of access to their markets and its spillovers to the rest of the world. When China or the US conditions access to its payment systems or fossil fuel exports on national security goals, uncertainty reverberates through the rest of the world. Emerging markets’ growth prospects rise and fall as the big three economies arbitrarily determine who gets to produce their imports and who does not.

Let the other international economic and financial institutions—the World Bank, the Organisation for Economic Co-operation and Development, the Group of 20 major economies, and so on—take their seats at every arguably relevant table and maximize their funding. The IMF is the only multilateral institution that deals directly with cross-border spillovers and macroeconomic volatility. The IMF is the only multilateral institution that can engage in macroeconomic conditionality with any hope of legitimacy and of changing borrower policies. The IMF is the only international entity that can force negotiation, albeit not necessarily rapid restructuring, by private sector investors. And the IMF is the only international organization that can chide the big three economies in precise terms with respect to their policies and not just ask for more contributions to public goods.

In surveillance, as in lending and other policy decisions, the EU, the US, and China have a common interest in making sure that each is criticized according to the same criteria, with the same frequency, and through the same public channels. The IMF should lock in on independent frankness rather than a mutual nonaggression pact over US fiscal deficits, Chinese exchange rates, and the EU’s ill-timed austerity, which served the world so poorly in the 2000s and 2010s.

Confronting new challenges

To better achieve its mandated goals and shore up its legitimacy, the IMF should aim for greater operational independence, akin to that of most central banks, while maintaining external evaluation of its competence by its members and having them set its overall goals. This is already taking place to some degree with respect to executive board approval of specific program decisions, for example. Continued progress will likely require narrowing down the IMF’s mandate to its core functions in exchange for more autonomy in specific policy decisions. Yielding some turf is what the Fund must do in terms of governance deals without compromising its evenhanded treatment of members.

Given the growing distrust among the US, the EU, and China, there should be a way forward to a mutual agreement to give the IMF that operational insulation. Securing such an agreement, with clear limits on what the IMF can address, would assure each of the big three economies that the other two will not be able to exercise control in situations that really matter to them. All macroeconomic institutions depend upon such a mutual recognition that it is better to yield control to be confident that there will be no abuse of power in turn. The absence of adequate insulation of IMF operations will likely splinter the global financial safety net, with divergent politicized conditionality; allocate access to funding unevenly, if not unfairly; and diminish stability of the international monetary system.

By focusing on its core mission, the IMF can adapt to the new global economic challenges arising from the fragmentation of geopolitics and the corrosion of globalization. Particularly worrisome is the largest economies’ increasing tendency to link access to their markets to various political loyalty tests or side payments. All manner of access is affected—exports to those countries, employment and technical knowledge in high-tech and other industries deemed “critical,” financial services and liquidity, foreign direct investment into and from those countries, and cross-border aid and lending. Intentional or not, this is the kind of national-security-driven fragmentation that the creation of the Bretton Woods institutions 80 years ago was aimed to prevent.

There are of course other imminent global challenges: climate change first and foremost, but also pandemics, food security, technology competition, trade wars, real wars, and the mass migrations all these induce. For member countries other than the big three, these challenges are likely to be experienced as recurring, increasingly frequent macroeconomic shocks. To the extent that these are simultaneous shocks across many member countries, the IMF should provide special facilities or lending to those members on common terms and insist that the big three economies change their behavior or offset the shocks.

Exercising best practice

For the majority of its members, then, it is essential that the IMF’s advice on macroeconomic policies to manage shocks and the vulnerabilities they expose follow best practice, and is consistent for all members, whatever the source of the shock. This is in the long-term best interest of the big three economies as well. But their governments are increasingly tempted either to insert their geopolitical preferences into IMF decisions or to shield their protectionist self-dealing from surveillance, despite the large impact on others.

The IMF can thus best serve its membership—including the big three—as a bulwark of technocratic multilateralism against politicized bullying in financial and other market access. A significant step in this direction would be greater IMF executive board ability to pass decisions by qualified majority voting—meaning restriction of the largest shareholder’s ability to exercise a veto—except on long-term or quasi-constitutional issues. This exchange of narrowness for the sake of operational independence would be helpful because the IMF would not be putting more US taxpayer funds at perceived risk or using them to serve mission creep.

Another step forward would be to adopt stricter and more consistent rules limiting IMF lending to economies at war, for example, with respect to Israel, the West Bank and Gaza, and Ukraine today. There is, of course, a need for support and eventual reconstruction assistance, but if the IMF is seen as taking sides while conflict is ongoing, it may split the world economy even further. For the first time since the 1980s, military conflicts directly involving the major powers’ allies on opposite sides are occurring and are likely to continue. The IMF should forestall falling into this trap.

Beyond China, the US, and overrepresented EU economies, the IMF’s members, particularly low- and middle-income countries, should view these challenges as an opportunity to have more say on matters that affect them deeply. Enhanced operational independence would go hand in hand with continued IMF accountability to its board for evaluation of its policy execution and for goal setting. The Bretton Woods institutions must be more reliable in the coming years if the big three economies continue to retreat from rules-based globalization in favor of with-us-or-against-us exclusionary economics. For all the immediate pressure on the IMF, well intentioned or otherwise, to respond to its largest shareholders on any given issue, insulation from increasing geopolitical division would be more than prudent. Greater operational independence is the prerequisite for addressing any and all of the other global economic challenges as geopolitics corrodes globalization.

Adam Posen is president of the Peterson Institute for International Economics.

Posen

To read the full article as published by the International Monetary Fund, click here.

To read the full article, click here.

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Despite this inspirational quote, most of the trade deals pursued by the Trump Administration were not “big deals”. In contrast, most free trade agreements (FTAs) signed by countries around the world – the kind of trade agreements that nowadays capture people’s interest and political attention – are quite big. First, FTAs are big for they cover trade flows worth billions, and “essentially all products”, to use a well-known expression. The best proof for this assertion is that EU bilateral FTAs cover 52% of extra-EU exports. Hence, almost by default, FTAs are seen as important trade policy instruments as they eliminate tariffs affecting billions of euro worth of commercial interests. FTAs are a “big deal” also for other reasons beyond tariffs: for instance, if and when they open up new market access for services. Furthermore, FTAs cover many important areas such as sanitary and phytosanitary (SPS) measures, technical barriers to trade (TBTs), intellectual property rights (IPR) and public procurement. The red thread linking all these areas in an FTA is the overarching objective of trade facilitation and reduction in trade costs. Hence, FTAs are central to the widely accepted view of current global trade relations, governed essentially by multilateral rules established at the WTO and complemented by a large (and growing) number of FTAs.

This paper goes beyond the conventional wisdom and sheds light on other trade agreements (trade mini-deals), which so far were less in the focus of EU trade experts and academics. The paper offers a first, preliminary assessment and a taxonomy of these mini-deals. The main takeaway is that there is a lot more going on than what meets the eye when it comes to EU trade policy. In reality, FTAs are just the tip of the trade policy iceberg. When taking a systematic look, it becomes apparent that FTAs are only one of the many trade policy instruments. Beyond FTAs, the EU has signed a much larger number of trade mini-deals that have, potentially, a significant impact on EU trade. A corollary of this proposition is that, over time, the cumulative impact of these mini-deals may be very significant. The paper concludes with a short assessment of the role such mini-deals could play in the future, given the evolving nature of trade policy objectives and the growing complexity of international trade negotiations.

To read the summary, please click here.

To read the full policy brief from the European Centre For International Political Economy, please click here.

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Abstract

Whether existing multilateral trade commitments really deter larger trading nations from taking steps that further weaken cross-border commercial ties is assessed here. Evidence from salient commercial policy episodes of recent years is combined with information on the actual leeway available to G-20 members under extant World Trade Organization rules. The upshot is a bleak assessment of the capacity of the existing multilateral trade rule book to rein in any attempt by larger trading nations to “deglobalize” the world economy.

Introduction

After the Global Financial Crisis analysts debated whether globalization – the ever-greater integration of national markets – was slowing down. Recently, the debate has shifted to whether the world economy has entered a phase of deglobalization. In light of growing geopolitical tensions and the so-called Polycrisis, some have gone so far as to argue that deglobalization – taken here to mean the conscious thinning of cross-border commercial ties through state action – is necessary.

My goal here is not to assess whether the world economy is or has been deglobalizing. Nor is my purpose to assess whether deglobalization is desirable or what its end point might be. Nor will I consider the factors that have triggered discussions of deglobalization. Here, I ask a different question: If a government contemplated trade policy measures that markedly thinned cross-border commercial ties, would the current corpus of multilateral trade rules prevent them from doing so? In short, I will examine what contemporary evidence reveals about the degree to which World Trade Organization (WTO) rules can really act as a bulwark against deglobalization.

The approach taken in this paper is not to assume or contend that existing multilateral trade rules have no bite. Demonstrating such a strong proposition is unnecessary given my research objective. Rather, I will marshal enough evidence on actual contemporary commercial policy decisions and on the leeway afforded to governments in current WTO accords that might give a reader inclined to believe that existing multilateral trade rules will act as an effective bulwark against deglobalization second thoughts. If this argument is correct then, as geopolitical rivalries intensify, we should moderate our expectations as to what WTO accords can deliver and look elsewhere for centripetal forces that might hold the world trading system together.

Assessment: Current WTO Rules cannot Contain Pressures to Deglobalize

The evidence presented in this paper implies that we should moderate our expectations as to the extent to which existing multilateral trade rules can limit state-induced deglobalization. Earlier, it was argued the WTO rule book is incomplete – for example, there are no rules on digital trade. Rules on foreign direct investment are patchy. Even where multilateral trade rules have been agreed, they allow many governments significant leeway to fragment markets (recall the size of the import tariff binding overhangs), or contain exceptions (recall the Article XI exceptions and those pertaining to national security) or they can be honored more in the breach (recall the evidence on the build-up of corporate subsidies) seemingly with impunity. Even when the rules were subject to dispute settlement, foundational principles – such as the MFN tariff treatment – have been simply ignored by major trading nations.

The best that can be said about the current multilateral trade rule book is that, to date, many governments (of mainly small- and medium-sized economies) have chosen not to openly violate their commitments. Pressures to favor national interests have been channeled away from transparent forms of trade discrimination (such as import tariffs) to less transparent forms of selective intervention (corporate subsidies, government procurement measures, export controls, and the like.) This shift toward harder to detect and less closely observed commercial policy intervention may have created the impression of a system capable of deterring government steps that fragment markets. If that was the case, the public revocation of MFN tariff treatment for most of China’s exports by the USA shattered that illusion. China’s retaliation and the enduring breach of the MFN principle have not been lost on observers either. Furthermore, the manner in which governments reacted to the crises of recent years and to intensifying geopolitical rivalry suggest little interest among the larger trading nations in returning to rules of the game agreed at the end of the Uruguay Round 30 years ago.

That multilateral trade rules are not likely to be an effective bulwark against conscious efforts to fragment markets or to offers of inducements to move factories across borders does not imply that these are desirable policy interventions. Indeed, that so many governments have chosen not to abandon the MFN principle, and that dozens of WTO members chose to lower trade barriers on medical goods and food during the crises of recent years, suggests that unilateral commercial policy is not always moving in a discriminatory direction. My conclusion here is that, for better or for worse, we have reached a point where governments have options that are no longer meaningfully constrained by multilateral trade rules. Of course, these findings make a mockery of the mantra that governments have insufficient policy space.

In principle, groups of like-minded nations could deter state-led deglobalization within the group – although that proposition ought to be evaluated on a case-by-case basis. Perhaps the expansion of membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) can secure an oasis of less-distorted trade among its members? But creating an oasis does not address the root causes of the growing impotence of multilateral trade rules evidenced in this paper. Still, should compliance with multinational trade rules weaken further, one option available to governments is to seek to substitute lost multilateral market access with an expanded and deeper network of regional trade agreements.

If multilateral trade rules cannot do the job of discouraging policy-induced deglobalization, what can? The decisive battles over unilateral policy will take place in national capitals. With intensifying geopolitical rivalry, we can reasonably expect that national security and foreign policy officials are likely to play a greater role in shaping commercial policymaking. Too many of the former cross-border commercial ties are said to be a source of risk, so little discouragement to deglobalize can be expected from that quarter. For these officials, trade policy is, at best, part of second order diplomacy, to be invoked symbolically and not because of any expectation that curbing trade will actually change a foreign government’s actions. One potential source of countervailing power comes from that part of the business community which has a significant stake in an open global trading system. Whether enough senior executives are willing to do so is an open question.

To read the full research article as it was published in Wiley Online Library, click here.

To read the full research article, click here. 

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Digitalization is allowing more services than ever to be traded internationally.

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1. Did globalization decline during that period?
2. To what extent did North America and China decouple their supply chains?
3. Did regionalization (“nearshoring”) increase?

In its broadest sense, the term “globalization” captures the interaction of national economies through the movement of people, ideas, capital, technology, goods, and services. Globalization so defined has already crossed a threshold from which it will likely never return, barring a global conflict or a failure to respond adequately to climate change. Indeed, individuals across the world today are more connected than ever before. Consider, for example, that almost two-thirds of the world’s population owns a smartphone, or that the estimated number of international tourists in 2023 exceeds 1 billion. Such human interconnectivity will only increase over time as communication and transportation-related technologies continue to advance. There has also been rapid growth in services trade, and especially in intermediate services.1 When observed through this broad lens, globalization remains deeply rooted and change is one of its enduring characteristics.

Among the many facets of globalization, our focus is on international trade, and on global value chains (GVCs) in particular. The volume of trade flows in goods and services has withstood significant challenges in the past, and stands to do the same in the future, even as patterns of trade flows change. Already, many of the negative impacts of the COVID-19 pandemic and increased geopolitical tensions have been met with creative workarounds, demonstrating the resilience of international trade and global supply networks. Changes in the patterns of cross-border trade in goods and services do not indicate a decline in globalization. Our quantitative analysis provides strong evidence that value-added trade supporting the production of goods and services did not recede during 2000-2021, nor was there evidence of a global trend toward reshoring. Instead, the evidence suggests that 2021 was a high mark for the global exchange of goods and services as measured by international value-added production linkages. Regarding the question of whether there has been a decoupling between North America and China, our analysis finds no evidence of decoupling of value-added production linkages. In fact, we find that China and North America increased their value-added production linkages between 2017 and 2021, implying significantly greater linkages than those that could be estimated using gross trade statistics.

Our analysis utilizes the GVC Indicators database created by the University of International Business and Economics (UIBE) in Beijing. The GVC Indicators database breaks down value added into that which flows through GVCs, and that which does not.2 See the appendix for a description of the data and methodology. In the charts that follow, the term “forward GVC participation” captures the degree to which a country’s domestic value added is exported through global value chains. “Backward GVC participation” captures the extent to which a country’s final production includes value added that is imported from global value chains. For each measurement, a higher percentage indicates greater relative importance of value added that is imported or exported through GVCs compared to value added sourced domestically. Thus, higher levels of backward and forward GVC participation indicate greater global integration of production networks.

We concentrate on the world’s three major trading entities: China, the European Union (EU), and North America, defined as the three nations in the USMCA (Canada, Mexico, and the United States). Our calculations for the EU in all years include GVC activity for the 27 member countries as of 2021, and therefore exclude the United Kingdom. Value added originating from China, the EU, and North America accounted for 54% of worldwide value added involved in GVCs in 2021, and final production by the three entities accounted for 57% of GVC-involved final production. Other significant GVC trading nations in 2021 which are not included in our main analysis include India, Japan, Russia, and the United Kingdom.3 In our analysis, we address reshoring within North America and the EU while considering how each bloc’s linkages with China have evolved over time.

To read the full paper, see below. 

Guy Erb is a former U.S. trade policy official and investment banker.
Scott Sommers is a PhD student in Economics at the University of Minnesota.

To read the full paper, please click here.

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Global trade will continue to face multiple challenges in 2023 as inflation and high interest rates, debt distress and geopolitical frictions weigh on many economies. The downside risks to the global economy and international trade are significant, ranging from an escalation of Russia’s war on Ukraine to deepening tensions between the US and China.

‘Reglobalization’ – rather than deglobalization – best describes the current pattern of economic integration and fracturing across different economies and sectors. Globalization is far from finished, but will increasingly emphasize greater regional links and the formation of economic blocs for sensitive and strategically important sectors. Comprehensive decoupling from China is neither achievable nor desirable for the G7 and like-minded partners.

The supply-chain disruptions of 2020–22 will continue to ease. Given that extreme weather events are the biggest threat to global production networks, supply-chain resilience and diversification efforts will persist, with added impetus to act on ‘greening’ trade.

The future of trade is closely linked to the transition to green and digital economies. As climate ambitions and technological leadership are intertwined with industrial policy objectives, concerns about unfair trade practices and protectionism are coming to a head not just as regards China, but also among the US, the EU and like-minded partners.

With major breakthroughs at the World Trade Organization unlikely in 2023, limited progress can be expected in some bilateral, regional and sectoral agreements. Meanwhile, efforts to avoid further trade fragmentation will progress more readily under Japan’s G7 presidency than under India’s G20 presidency.

Introduction

This briefing paper analyses the outlook for global trade in 2023, and examines the structural forces shaping global trade and globalization more broadly.

It argues that ‘reglobalization’ – rather than deglobalization – best describes the current and likely future pattern of economic integration and fracturing across different economies and sectors. Trade policy has an important role to play in underpinning the positive aspects of a reglobalized world and in balancing geopolitical competition and cooperation, not just through coordinated efforts to strengthen supply-chain resilience, but also in harnessing the twin transitions to green and digital economies.

The paper draws on insights from expert roundtable discussions and a high-level speaker series under the umbrella of the Chatham House Global Trade Policy Forum. It is the first of a new annual series that will highlight some of the major global trade trends and prospects for the year(s) ahead.

Marianne Schneider-Petsinger is a senior research fellow in the Global Economy and Finance Programme at Chatham House, responsible for analysis at the nexus of political and economic issues. Before joining Chatham House in 2016, she managed the Transatlantic Consumer Dialogue, an international membership body representing consumer organizations in the EU and the US. She also worked for a think-tank on transatlantic affairs in the US, and for the Thuringian Ministry of Economic Affairs in Germany.

To read the full report, please click here.

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A critical gateway between the Mississippi River and global oceans, New Orleans has been an entry and exit point for the United States since before the Louisiana Purchase. The city is now betting that position will continue — and even deepen — as the world enters a new era of global integration.

The New Orleans port is one of the nation’s busiest for agricultural exports like soybeans and corn. But it has struggled to compete for the lucrative imports that are ferried on huge ships from Asia, in part because those vessels cannot fit under a local bridge. As global supply chains rearrange in the pandemic’s wake, New Orleans’ proximity to Mexico and its position on the Mississippi River could help make it a crucial stop in what many expect to be a more resilient supply chain of the future.

Jeanna Smialek writes about the Federal Reserve and the economy for The New York Times. She previously covered economics at Bloomberg News, where she also wrote feature stories for Businessweek magazine.

Ana Swanson writes about trade and international economics for The New York Times. She previously covered the economy, trade and the Federal Reserve for The Washington Post.

This piece was originally posted on the New York Times. 

To read the full article, click here. 

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After years of upheaval in international economic relations, a new approach to trade policy is taking shape: multipurpose trade policy. Inspired by competing narratives about globalization that bring different values to the fore, this approach no longer just tries to achieve an efficient international division of labour through trade liberalization. Rather, it tasks trade policy with achieving other substantive policy objectives as well, which include bolstering labour rights, addressing inequality, building resilient supply chains, safeguarding national security, and mitigating the climate crisis.

Trade officials have long been attentive to the effects of trade on other policy objectives, often portraying them as either positive or negative externalities of trade liberalization. On the positive side, increased international interdependence was expected to promote peaceful international relations. Some expected that rising incomes would lead to better working conditions and more support for environmental protection. Others argued that trade produced negative externalities, such as the overexploitation of resources and environmental degradation, and advocated for the expansion of exceptions to trade obligations to resolve conflicts between trade and other objectives. Since the early 1990s, trade agreements have also often featured provisions regarding labour rights and the environment to ensure that greater international competition does not take place on “unfair” terms.

The key distinguishing feature of the more recent shift to multipurpose trade policy is that other policy objectives no longer come into the picture as externalities of trade liberalization or as safeguards against unfair competition. Instead, those other policy objectives have taken a place alongside, and in some cases the place of, trade liberalization as the immediate objectives that trade policy is supposed to pursue.

The purpose of this article is to sketch the evidence for this paradigm shift in trade policy, outline the key challenges that it presents, and explore its implications for international trade cooperation.

The Crisis of Globalization

It is now commonplace to observe that globalization is in crisis. One piece of evidence of this crisis is that the establishment view of globalization as an inevitable force for good is increasingly being challenged by other narratives that bring a range of competing values to the fore. From the economic establishment’s perspective, free trade and an efficient international division of labour have the potential to make everyone better off—if governments implement the right policies domestically to help workers adjust to the dislocations that competition in a truly global economy may cause.

As Anthea Roberts and I show in our book Six Faces of Globalization, many other narratives are testing this view. There are those who argue that the damage that job losses cause to certain groups of workers outweighs the benefits of cheaper products and additional economic opportunities that globalization may create in other places and for other professions. Another narrative maintains that the investment and intellectual property protections in international economic agreements contribute to rising inequality. There are also rising concerns about the security implications of international economic interdependence; Russia’s invasion of Ukraine is only the latest illustration of why it may be unwise to become overly reliant on a trading partner whom one cannot trust. Yet others point out how the COVID-19 pandemic has exposed the fragility of global supply chains and our economic systems’ lack of resilience to shocks. And finally, the drumbeat of news about floods, droughts, extreme heat, and wildfires provides a daily reminder of how the global diffusion of Western patterns of production and consumption has set the world on a path to climate breakdown.

The Turn to Multipurpose Trade Policy

We can understand the shift to multipurpose trade policy as a response to these narratives. As European Union Director General for Trade Sabine Weyand has written, it is now “normal to ask what trade can do to address the big tests of our time. How can it help combat climate change? How can it promote labour rights globally? How does it impact security?” Weyand notes that “trade is seen as a tool to attain broader objectives more than ever.” Trade policy is increasingly moving away from efficiency as its primary objective. United States Trade Representative Katherine Tai has argued that the pursuit of efficiency has created a “quite fragile global economy” and that “in refashioning globalization to a Globalization 2.0 … we [need to] adapt the rules of trade to incentivize firm behavior to take into account more than just efficiency, but to promote and to reward decisions that are made to pursue sustainability for our people and our planet.” The U.S. initiative for an Indo-Pacific Economic Framework, which the United States is negotiating with 12 countries in the region, foregrounds the objectives of “resilience,” “inclusion,” and “sustainability.” At the same time, ever more aspects of U.S. trade policy are dominated by considerations of national security, especially in its relationship with China.

Multipurpose trade policy also plays an increasingly prominent role in the World Trade Organization (WTO). The Agreement on Fisheries Subsidies is the first WTO agreement that primarily pursues a sustainability objective. In the wake of the global supply chain crisis and rising food and energy prices, food security has taken a much more prominent place on the WTO’s agenda. And the debate about how the WTO can help its members do a better job of weathering the next pandemic is in full swing.

Not all new objectives enjoy universal support. While some goals, such as sustainability and resilience, are broad enough to garner virtually universal assent, others, such as the use of trade measures to promote labour rights or shore up national security, are more controversial. Even on the widely supported objectives, there is disagreement on how best to achieve them. However, the bottom line is that trade policy is now expected to pursue a much broader range of objectives than even a few years ago.

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