The Role of Populism and Global Co-operation in International Trade

Historically, international trade has catalysed economic growth and social development worldwide. The expansion of trade after the end of the Cold War allowed billions of people to escape extreme poverty, boosted economic growth in developing economies and contributed to the global diffusion of technology and innovation.

International trade offers various advantages, including access to a wide range of goods and services that may not be available locally. It also enables countries to specialise in producing what they have comparative advantages in, i.e., what they are more efficient at and can produce at lower costs. This process of specialisation results in a more efficient allocation of resources, boosting productivity and fostering local economic growth.

In 2021, exports of goods from the European Union (EU) accounted for 15 per cent of world trade, while imports reached 14 per cent. These figures highlight the EU's importance on the global stage, putting it on an equal footing with trading giants such as the United States and China. Such a position reflects not only the EU's economic strength but also its ability to integrate effectively into the global economy.

Currently, the EU has around 130 trade agreements in force, which are in the process of being adopted or being negotiated. These agreements aim to reduce tariffs and provide an opportunity for the EU's quality and safety standards to be recognised by its trading partners. Through such agreements, the EU benefits trade, protects its cultural heritage and values the quality of its products. Those benefits extend beyond and enrich the world's cultural and gastronomic diversity. [1]

Globalisation also creates new job opportunities. In 2019, more than 38 million jobs in the European Union were supported by exports to countries outside the Union. Most of these export-related jobs are well-paid, on average 12% more than other jobs. Consumers also benefit from global trade. Increased competition means lower prices and more choices for goods and services.[2]

However, despite so many apparent benefits, the current scenario shows a slowdown in international trade. Among the factors influencing the fall in foreign trade are the rise of populism, the emergence of protectionist trade policies and growing geopolitical uncertainty. Populism, in particular, has played a significant role in this slowdown. Its approaches often reduce the confidence of foreign investors, generate economic uncertainty due to abrupt policy changes, promote the resurgence of protectionism, disrupt global supply chains and threaten global economic growth. These consequences can potentially undermine international trade cooperation, damage the competitiveness of companies in international markets and ultimately negatively impact global economic prosperity. [3]

The World Economic Forum's Global Economic Futures Council on International Trade and Investment presented four potential scenarios in 2019/2020 that outline different trajectories for developing international trade and the global economy, as shown in the table below.[4]

As the table shows, these four possible scenarios are based on two main factors: the ease of trade (high or low) and the approach to cooperation (unilateralism or cooperation). The first scenario presents the combination of high ease of trade and unilateralism, labelled "Technological Disruption". In this setting, the ease of trade is high, which means that trade barriers between countries are minimal. However, the approach to cooperation is unilateralist, meaning that countries cannot cooperate effectively to deal with trade issues. The rapid technological disruption surpasses the government's ability to regulate. This scenario can lead to a borderless world for some sectors and simultaneously create uncertainty and inefficiencies, given that regulations cannot keep pace with technology.

The second scenario presented combines high ease of trade with cooperation between countries, called "Open International Rules". Here, ease of trade remains high, but countries choose to cooperate to address trade issues. This is done by strengthening the World Trade Organisation (WTO) and other international frameworks. In this context, countries work together to establish open international rules that promote fair and equitable trade, seek to resolve trade disputes peacefully and promote global economic cooperation.

The third possibility combines low ease of trade with unilateralism, with a "Sovereignty First" perspective. In this configuration, the ease of trade is low, which means that trade barriers between countries are high, prioritising national supremacy. In this way, the lack of cooperation leads to unilateral trade barriers that cause inefficiencies, high economic risks, and a decrease in productivity and innovation.

The last scenario combines high ease of trade with cooperation between countries, which has been termed "Competing Coalitions." Here, although the ease of trade is low, countries choose to cooperate to a certain extent. However, they are often drawn into competitive spheres of influence, such as those led by the US, Europe, and China, resulting in competition between regional blocs, including MERCOSUR, outside the WTO structure. In other words, although there is some cooperation between countries, they remain divided into different coalitions, which can lead to trade tensions and rivalries between those groups.

Given the promotion of economic and social well-being and international stability, the scenario that seems most advantageous is "Open International Rules", the combination of high ease of trade and cooperation. Strengthening international institutions such as the WTO and establishing open international rules that promote fair and equitable trade creates a favourable environment for global economic growth, facilitating the flow of goods, services and investments between nations.

In a nutshell, overseas cooperation helps to mitigate conflicts and promote peace, as it encourages dialogue and the peaceful resolution of trade disputes and other international conflicts. Strengthening trade links and economic interdependence between countries can also reduce the chances of armed conflict while promoting shared prosperity. In this sense, it is imperative that the global community works together to boost international trade through cooperation in a rules-based system.

[1] ‘Acordos Comerciais: A Posição Da UE No Mundo: Temas: Parlamento Europeu’ (Temas | Parlamento Europeu) <https://www.europarl.europa.eu/topics/pt/article/20180703STO07132/acordos-comerciais-a-posicao-da-ue-no-mundo> accessed 13 March 2024 

[2] ‘Benefícios Da Globalização Económica Na Europa: Factos E Números: Temas: Parlamento Europeu’ (Temas | Parlamento Europeu) <https://www.europarl.europa.eu/topics/pt/article/20190603STO53520/os-beneficios-da-globalizacao-economica-na-europa-em-numeros> accessed 13 March 2024 

[3] Kose MA and Mulabdic A, 'Global Trade Has Nearly Flatlined. Populism Is Taking a Toll on Growth' (World Bank Blogs, 22 February 2024) <https://blogs.worldbank.org/voices/global-trade-has-nearly-flatlined-populism-taking-toll-growth> accessed 13 March 2024 

[4] Tan Y and González A, 'Four Scenarios for the Future of Trade and Investment' (World Economic Forum, January 2020) <https://www3.weforum.org/docs/WEF_GFC_Trade_Briefing_Paper.pdf> accessed 13 March 2024