Article summary
- The International Monetary Fund (IMF) has warned against protectionism, stating that it would lead to a less resilient, more unequal, and conflict-prone world.
- Policymakers in some of the world’s largest economies have chosen protectionist or nationalist policies, halting further international integration.
- The IMF argues that the evidence does not support arguments against trade, and protectionism is not the solution to the challenges posed by globalization. It may exacerbate problems such as spatial inequality and could even increase the risk of conflicts.
The International Monetary Fund has warned members about the adverse effects of protectionism as a response to globalization, stating it would make the world less resilient, more unequal, and more conflict-prone.
The IMF disclosed this in a statement on Saturday, titled “Growing Threats to Global Trade.”
They warned that policymakers in some of the world’s largest economies have made choices to halt further international integration and, in several instances, to embrace protectionist or nationalist policies.
Less resilient world
The IMF revealed that Protectionism could make the world less resilient, more unequal, and more conflict-prone.
They added that since 2020 policymakers in some of the world’s largest economies have made choices to halt further international integration and, in several instances, to embrace protectionist or nationalist policies, however, added:
- “Today, no conclusive evidence exists that international trade is deglobalizing. When measured in US dollars, global trade growth slowed after the global financial crisis in 2008–09 and declined sharply at the onset of the pandemic in 2020. But since then trade has rebounded to the highest value ever.
- “As a share of GDP, global trade has fallen modestly, driven mostly by China—which for years has pursued a “dual circulation” strategy of prioritizing domestic consumption while remaining open to international trade and investment—and India.
- “This reflects the end of an extraordinary export boom both countries experienced in previous decades as well as fewer imports of intermediate goods than in the past. Yet, as a share of GDP, imports of intermediates by the rest of the world are still growing. The same is true of exports.”
Protectionists lacking evidence
IMF noted era of “hyper globalization” that took shape from the 1990s onward was associated with great economic achievement, adding that arguments against trade that emphasize the fragility of supply chains are not consistent with the evidence, they said:
- “Consumers in economies open to trade gained access to an extraordinary variety of goods sourced from all over the planet at affordable prices. Smartphones, computers, and other electronics allowed people to be more productive and to enjoy more varied entertainment than previous generations had ever dreamed.
- “Overall, arguments against trade that emphasize the fragility of supply chains are not consistent with the evidence.
- “These arguments were used to stoke the protectionist sentiment that had originated in the first phase, but ultimately the initial effects were not enduring.”
Global backlash
They acknowledged that many workers in advanced economies were feeling left behind, doing worse than their parents, adding communities more exposed to import competition from low-wage countries thanks to preexisting spatial industrialization patterns did worse than communities that were sheltered from imports.
- “This, in turn, had important political consequences in the US and the UK. At the same time, globalization created big winners: multinational “superstar” firms that benefited from the hyperspecialization of global value chains, in the form of lower costs and higher profits, as well as a class of highly compensated individuals who reaped the rewards associated with expanding markets and new economic opportunities.”
Protectionism, not a cure
They added that Greater trade barriers lead to higher prices, which means lower real wages, adding Globalization may have contributed to more spatial inequality, but protectionism is not the cure as it will likely make the problem worse.
- “Across countries, there is a risk of increased global inequality. Geoeconomic fragmentation could lead to more trade between high-income economies that are “friends.”
- “ Increasing emphasis on environmental and labour standards in trade agreements would raise entry barriers for very poor countries that find it difficult to meet these requirements.
- “Without access to lucrative foreign markets, there is no clear path for poverty reduction and development in such economies
- “But the greatest risk may be to peace. Cold wars have often led to hot wars. During the interwar period in the 1930s, there was a dramatic shift away from multilateral trade toward trade within empires or informal spheres of influence.”
What you should know
The International Monetary Fund, IMF, revealed the baseline forecast is for global growth to fall from 3.4% in 2022 to 2.8 % in 2023, before settling at 3.0 % in 2024.
IMF disclosed this in its World Economic Outlook update for April, Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 % in 2022 to 1.3% in 2023.
Sub-Saharan forecasts stay moderate at 3.6 % in 2023 before picking up to 4.2% in 2024, with Nigeria maintaining 3.2 % in 2023 and 3.0% in 2024.