Neglecting open trade will cause price instability –Okonjo-Iweala

According to Ngozi Okonjo-Iweala, Director-General of the World Trade Organization, moving away from open trade will result in increased price volatility, inflationary pressures, and weakened growth prospects.

She made this statement recently at the annual Jackson Hole Economic Policy Symposium, which was held at the Federal Reserve Bank of Kansas City in the United States.

While fragmenting trade into competing blocs “would be extraordinarily costly,” the WTO director general emphasized that predictable commerce was a source of disinflationary pressure, reduced volatility, and boosted economic resilience.

According to Okonjo-Iweala, a society that rejects predictable and open commerce will be characterized by weaker competitive pressures and higher price volatility.

“It would be a world with worse growth and development prospects, a slower transition to a low-carbon economy, and higher supply vulnerability in the face of unforeseen shocks.”

She observed that widespread sustained inflation had returned in the developed world, and that subsequent monetary tightening had exacerbated debt hardship and financial instability for numerous emerging economies.

She claims that some policymakers have concluded that the pace of globalization has to be slowed down as a result of these shocks and rising geopolitical tensions.

She continued by stating that according to estimates by WTO analysts, the world economy splitting into two independent trading blocs would cause a long-term real global GDP decline of at least 5%, with certain emerging economies seeing double-digit welfare losses.

“Despite all the tensions and doubts surrounding trade, overall trade costs for agricultural products, manufactured commodities, and services have decreased by 12% over the previous 20 years, with the rising digitalization and trade in services possibly becoming a strong disinflationary force.

According to the WTO director-general, “falling trade costs for products, and notably for services, indicate that globalization may still be an engine for improved growth, efficiency, and economic opportunity, while also contributing to price moderation.”

Increased digitalization and trade in services, supported by initiatives like the agreement on Services Domestic Regulation, reached by WTO members and accounting for over 90% of all global services trade, and the ongoing discussions on electronic commerce being negotiated among 90 WTO members, could become a potent disinflationary force, according to Okonjo-Iweala.

She counseled that harnessing those potential required free and predictable global markets centered in a robust and successful multilateral trading framework based on rules.