The system of rules regulating global trade is facing tensions due to long-standing, unresolved issues, the International Monetary Fund (IMF) said recently in its key annual report.
“No issue looms larger on the global stage than trade,” said IMF First Deputy Managing Director David Lipton in the report.
Despite the benefits, which Lipton says global trade integration has brought to the world, “there are distortions in the trade system that need to be reformed. Collective action is important to uphold and modernize the international trade system.”
The first part of the report makes the case for the reform of the global trade system. Al Arabiya English has combined some of the most useful findings and examples of these cases below:
1) The world is worse off for trade tensions.
The IMF noted that should trade tensions continue to escalate between the US and China, as well as European nations, the world could lose some 0.4 percent of global GDP = equivalent to $340 billion in 2018.
2) Bilateral trade balances are driven by macroeconomic policies than by tariffs.
Macroeconomic policies, such as overly stimulative fiscal policies and subsidies on state-owned enterprises, have more impact on bilateral trade balances than tariffs, the report suggested, citing the April 2019 World Economic Outlook.
The IMF also noted the reports’ findings that bilateral tariffs are an ineffective measure for addressing trade imbalances.
3) Trade rules and organizations need updating – especially the WTO.
The IMF said that although the mechanism by which global trade is conducted, established after World War Two, has delivered “enormous benefits” to the world, it is in need of updating. Specifically, the fund noted that its Executive Board are holding discussions on how to modernize the World Trade Organization (WTO), established in 1994, in the fields of negotiation, transparency, and dispute resolution.
The IMF pointed to WTO rules in industrial and agricultural subsidies, and on technology transfer as key towards developing “a trade system that can work better for all countries.”
4) Global current account inbalances are too high.
The IMF, citing the 2018 External Sector Report, pointed to global current account inbalances as a potential threat to global financial stability. The report found imbalances stand at around 3.25 of world GDP, with advanced economies accounting for between 40 and 50 percent of that, a number “deemed excessive.”
5) Trade integration is key.
The report highlighted the Maghreb region (Algeria, Libya, Mauritania, Morocco and Tunisia) as an excellent example of how regional trade integration can be a driver of economic prosperity. The Maghreb region represents only five percent of overall trade, the IMF said, with intraregional trade at globally low levels.