#TRADEMATTERS

This is a portal about international trade and its influence on small and medium business.

WHY GLOBAL TRADE IS IMPORTANT

World trade receives a pretty bad press these days...

You might have heard the line that international trade is bad news for workers; that it destroys local communities; or that it degrades our planet.

Politicians on the campaign trail often claim that trade deals are simply a tool to help big companies at the expense of the man on the street.

And all the while no one speaks up for the benefits of international commerce. So it’s no wonder that public opinion on trade is souring in many countries around the world.

We think it’s time to set the record straight.

We’re not going to tell you that the global trading system is perfect. We too think there is scope for positive change to enable trade to better serve the needs of families across the world.

But it’s only right that any debate on the role of trade in today’s economy is balanced and evidence-based. Policies based on myth, hearsay or political hyperbole rarely work out well. Take protectionism: sheltering industries from global competition might sound like a good idea, but evidence shows that it creates real hardship in the long run.

It might not be popular to say it but trade matters. In fact it matters today more than ever.

JOBS AND GROWTH

In 2015, global economic activity remained subdued. Growth in emerging markets and developing economies declined for the fifth consecutive year, while advanced economies continued to experience weak growth.

High rates of unemployment worldwide—particularly for young people—point to what the International Labour Organization has termed an emerging “jobs crisis”.

What you might have heard…

Some politicians claim that global trade puts local jobs at risk, particularly in the manufacturing sector. The argument goes that closing markets to international competition will safeguard jobs and boost domestic economic growth.

But is this really the case?

Research shows quite clearly that open economies grow faster than closed ones. To take just one example, World Bank research shows that developing countries which opened up to international trade in the 1990s grew more than three times faster than those that maintained a high degree of protection to international competition.

The relationship between trade and employment is somewhat more complex. It’s well known that trade can cause changes in labour markets—such as where new jobs that are created replace more traditional roles and skills. That’s why it’s important for governments to put in place coherent policies that help facilitate structural adjustments and address associated social concerns. Nevertheless, trade isn’t a zero sum game when it comes to employment: many jobs depend on both imports and exports. Imported inputs are increasingly used in local value-added production, with the output often destined for export markets. Take the Boeing 787 Dreamliner, the production of which involves 43 suppliers spread over 135 sites around the world collaborating for their mutual benefit.

In times of economic difficulty, closing markets to international competition might sound like a good way to “protect” jobs. But experience has shown that such policies are often counterproductive: temporarily saving jobs in vulnerable sectors often at the expense of higher paying jobs in competitive sectors of the economy. For example, one study of the quantitative restrictions in autos, steel and textiles in the US in the mid-1980s put their annual cost at almost a quarter of a million dollars per protected job.

GLOBAL AGENDA

Growth in the volume of world trade is expected to remain sluggish in 2016 at 2.8%. This will be the fifth consecutive year of trade growth below 3%. World Trade Organization estimates suggest that global trade growth should pick up to 3.6% in 2017—a welcome improvement but still well below growth rates seen prior to the financial crisis.

Trade agreements aren’t designed to support or help individual businesses, but rather to support growth and development of economies as a whole. They are, simply put, an exchange of market access between governments: a levelling of the playing field in one market in exchange for a levelling in another. Early multilateral trade agreements reduced trade barriers from high levels in the early post-war years and established global trading rules that allowed trade to flourish in the age of globalization. These broad, multilateral agreements—now overseen by the World Trade Organization—also played a central role in keeping protectionist responses to economic shocks broadly in check. More recent bilateral and regional agreements have played, by contrast, a more minimal part in global trade growth. 

The International Chamber of Commerce is supporting global efforts for instance to streamline customs and border procedures, liberalize trade in green technologies and enhance the supply of finance for small businesses looking to trade internationally.