Building a More Sustainable Global Trade System

    Stockholm (NordSIP) – The ongoing consumption-driven recovery from the COVID-19 pandemic has allowed global trade flows to return to their previous path, exceeding their pre-pandemic level. However, Triodos Investment Management’ Investment Outlook for Q4 2021 warns that “by returning to the old hyper-globalised status quo resilience and sustainability have again been left out of the equation.”

    The report argues that the COVID-19 economic recovery creates the opportunity to build a sustainable basis for a system of international trade that integrates poverty reduction, labour rights and climate change, global cooperation, more consistently to avoid fragmented and disperse trade blocs that compete via low wages.

    “Policy makers should take back control of trade, instead of leaving it to multinationals to decide the rules of the game. Reaching the world’s 2030 Sustainable Development Goals (SDGs) requires finding the right balance between localisation and more extensive global cooperation,” says Joeri de Wilde, Investment Strategist at Triodos IM.

    Addressing poverty

    According to the Triodos IM report, addressing poverty in the aftermath of the pandemic involves fostering inclusive trade and ensuring that the income from trade is appropriately distributed.

    The report uses the different development models of Africa and Asia to highlight the ability of trade to create positive spill-overs.  “Many multinational companies in Africa ship in their inputs and export what they produce benefitting from cheap labour. No additional added value is created, and no knowledge is transferred, which does not spur development,” the report argues.

    Regarding income distribution, Triodos IM highlights the importance of a favourable business environment for exporting highlighted in a recent World Bank report. “If weak institutions, infrastructure, and logistics increase costs, lower wages are then often used as the means to become more competitive. Although there may be an increasing trend of trade agreements that include social clauses, including acceptable wages, their enforcement is still weak,” the report continues. To this end, extending the scope of trade agreements to cover sustainability and enforcement, for example regarding human rights and recycling standards, could be a step in the right direction, according to the Dutch asset manager.

    Green Trade

    Staying with the idea of increasing the scope of trade agreements to cover ESG issues, Triodos IM goes on to argue that it is possible to make trade more environmentally friendly by creating standards for sourcing, production and the use of products, such as plastic.

    For instance, choosing the appropriate technology to help the efficient use of resources or by digitising different components of the supply chain, businesses can better manage their inventories, as well as choosing manufacturing processes that are more resource efficient. These initiatives could be embedded in multilateral trade agreements.

    Sustainable Multilateralist

    “Floppy trade policies going from protectionism to bilateralism, regional approaches and multilateralism, the shifting of strategies is constant and sustainability considerations are absent, often resulting in suboptimal trade conditions for consumers, producers and for the global economy,” Tridos IM argues.

    The USA’s recent isolationist and bilateralist steps and China’s attempt to decouple its companies from Western capital markets, are warning signs of the fragility of the global multilateralist trade models that characterised the post WWII world.

    “Trade could be the linking pin that allows to jointly uphold social and environmental pledges. When all hands are needed, we are convinced that better trade can accelerate the process,” Tridos IM concludes.


    Image courtesy of Valdas Miskinis from Pixabay
    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

    Latest Posts

    NordSIP Insights Handbook

    What else is new?