Is the global community breaking up into rival power blocs? Are friendly governments isolating themselves from the other bloc? That would have serious consequences for world trade, warns the WTO chief economist.
The World Trade Organization (WTO) sees signs of fragmentation in the global economy and warns of possible deglobalization. “The economic costs would be very high,” said the German chief economist at the World Trade Organization, Ralph Ossa, to the German Press Agency. And not only that: world trade is important for security of supply, sustainability and justice. Ossa sees the global community at a crossroads.
“We are seeing initial signs that there is a reorientation of trade based on geopolitical spheres of influence,” said Ossa. The WTO has divided the world into two hypothetical blocs for an investigation: on the one hand, countries that vote with the US in the United Nations and on the other those that side with China. Trade within the blocs has grown four to six percent more than between the blocs since the start of the Russian attack on Ukraine in February 2022.
World at a crossroads
The situation is not yet dramatic, but it could become so, warned Ossa. The WTO has calculated what would happen if the world actually split into two rival power blocs and the blocs set up trade barriers against each other. In such a scenario, industrialized countries would lose an average of three percent of their gross domestic product by 2050, and poor and emerging countries would lose 6.5 percent, the WTO wrote in its world trade report in autumn 2023.
“There is currently a lot of discussion about whether we should become more independent of other countries, whether we should perhaps only trade with friendly countries or only rely on our own production,” says Ossa. This poses the danger that “the flattening of globalization will turn into deglobalization.” The world is still a long way from that. But she is at a crossroads. Countries would have to decide whether they see global trade as part of the solution to problems or as part of the problem. The WTO, with its 164 member countries, whose task is to promote fair world trade for the benefit of all, sees trade as part of the solution.
World trade was a blessing during the corona pandemic, said Ossa – apart from the beginning, when countries temporarily stopped exports of important goods such as face masks. At times this also included Germany. Masks, home office equipment and vaccines were produced in international supply chains and made available through trade. In addition, one does not know where the next shock will occur and who will then have the solution. A multilateral trading system ensures that there are always alternative procurement options in crises.
Source: Stern
