WTO warns about fragmentation of global trade into allied blocs

Geopolitical tensions are changing trade flows as countries switch supply chains to allies rather than the most efficient exporter, the World Trade Organization has said.

The value of traded goods and services continues to rise, but it is growing faster within allied blocs than as a whole, the Geneva-based organisation said in its annual world trade report, warning this would lead to higher costs and more conflict.

“The post-1945 international economic order was built on the idea that interdependence among nations through increased trade and economic ties would foster peace and shared prosperity,” WTO director-general Ngozi Okonjo-Iweala said in the report, published on Tuesday.

“Today this vision is under threat, as is the future of an open and predictable global economy,” she warned.

The WTO calculated that goods trade flows between two hypothetical geopolitical blocs — based on countries’ foreign policies according to voting patterns at the UN General Assembly — have grown 4-6 per cent more slowly than trade within these blocs since Russia’s full-scale invasion of Ukraine in February 2022. 

There has also been an increase in countries such as the US invoking national security risks to ban trade in strategically important goods and services, especially with China. These include export controls on silicon chipmaking technology. Between 2017-22 there were 38 complaints about such measures raised with the WTO, twice as many as between 2011-16.

Complaints about barriers to goods trade have also been rising, with the number of cases in which duties were levied on subsidised imports doubling from 2011-16 to 164 in 2017-22.

However, the report said talk of “deglobalisation” was premature. 

The value of world merchandise trade rose 12 per cent to $25.3tn in 2022, partly because of inflation linked to rising commodity and fuel prices sparked by the Ukraine war. The value of world commercial services trade was $6.8tn in 2022, up 15 per cent from a year earlier.

The report noted that developing economies had increased their share of digital services exports by 3 percentage points in 2022, while trade in environmental goods had quadrupled since 2000, outpacing the growth of total goods over the same period.

Okonjo-Iweala said “re-globalisation” — a renewed drive towards integrating more economies and sectors into world trade flows — would help cut poverty, fight climate change by spreading green technologies and help bolster security because countries with close trading relationships were less likely to wage war with each other.

Trade ministers from WTO member states meet in Abu Dhabi next February in an attempt to reinvigorate the global trade body.  

“The WTO is not perfect — far from it. But the case for strengthening the trading system is far stronger than the case for walking away from it,” Okonjo-Iweala added.