The Director-General of the World Trade Organisation, Ngozi Okonjo-Iweala, recently emphasized that moving away from open trade would result in heightened price fluctuations, inflationary pressures, and weakened prospects for economic growth.
Speaking at the annual Jackson Hole Economic Policy Symposium hosted by the Federal Reserve Bank of Kansas City, U.S., she highlighted the importance of predictable trade, which contributes to reduced volatility, increased economic resilience, and disinflationary influence.
Okonjo-Iweala cautioned against the costly consequences of trade fragmentation into rival blocs.
She stated, “A world that rejects open and predictable trade will witness reduced competitive pressures, amplified price volatility, and diminished growth and development opportunities.
This scenario would also impede the transition to a low-carbon economy and heighten supply vulnerability when facing unexpected shocks.”
Discussing the resurgence of sustained inflation in affluent nations, she noted how subsequent monetary tightening exacerbated debt distress and financial instability in many developing economies.
Some policymakers have even contemplated rolling back globalization due to these shocks and escalating geopolitical tensions.
WTO economists estimated that a scenario where the world economy separates into two self-contained trading blocs could reduce the long-term global GDP by a minimum of five percent, causing significant welfare losses in certain developing nations.
Okonjo-Iweala highlighted the positive trends in trade costs, with agricultural products, manufactured goods, and services experiencing a 12 percent cost reduction over the past two decades.
The increasing digitization and growth in service-based trade could serve as a powerful disinflationary force.
Lower trade costs for goods and services underscore the potential for globalization to drive growth, efficiency, and economic opportunities, while also aiding in price control.
The Director-General pointed out that initiatives like the agreement on Services Domestic Regulation and ongoing negotiations on electronic commerce among WTO members could further amplify the disinflationary effect.
She stressed that capitalizing on these prospects necessitates maintaining open and predictable international markets, firmly rooted in a robust and effective rules-based multilateral trading system.
