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Increasing protectionism threatens to undo 30 years of success in closing the income gap between poor and rich countries, warned the World Trade Organization.
A WTO report released on Monday said per capita income in low- and middle-income countries had almost tripled between the organization’s founding in 1995 and 2023. Global per capita income had only increased by about 65 percent over the same period.
WTO Director-General Ngozi Okonjo-Iweala said the findings contradicted “currently accepted thinking that trade and institutions like the WTO are not good for poverty or poor countries.”
However, Okonjo-Iweala acknowledged that globalisation had left many people in rich countries feeling “left behind” and unable to “benefit from the new opportunities”.
“Their frustration has triggered a political backlash against international trade,” Okonjo-Iweala said on Monday.
Some believe that the backlash against trade has weakened the role of international standard-setters such as the WTO.
“Other priorities for governments are more important than (trade) predictability,” said Dmitry Grozoubinski, executive director of the Geneva Trade Platform think tank. “On things that governments really care about, they are increasingly starting to circumvent WTO rules or simply ignore them.”
Politicians in industrialized countries – including the world’s largest economy, the United States – increasingly view protectionism as a means of demonstrating awareness of the impact of globalization on manufacturing jobs in their home countries.
Former US President and Republican candidate Donald Trump has announced that he will impose 10 percent tariffs on all imports if he is re-elected in November. Imports from China, once the USA’s largest trading partner, will be subject to 60 percent tariffs.
His successor, Joe Biden, has retained many of Trump’s policy views. Current US Treasury Secretary Janet Yellen said that the US has lost two million manufacturing jobs since China joined the WTO in 2001.
While the WTO stated that most workers had benefited from trade, it also acknowledged exceptions. For example, workers who lived in rural areas or did not have the necessary skills were more affected by trade-related job losses.
States in America’s rust belt, such as Michigan, which industrialized early, have suffered dramatic export losses since the 1970s, while the southern states have prospered. Automakers and others have invested there because land and labor are cheaper.
The WTO Director-General argued that protectionism is not an effective policy to address inequalities, pointing out that trade restrictions can harm economies as they tend to increase production costs while “inducing costly retaliation from disgruntled trading partners.”
The Peterson Institute estimates that Trump’s proposed tariffs will cost the average U.S. household $1,700 a year, with an even higher burden on poorer households.
Britain’s exit from the EU single market led to a 6 percent increase in food prices. According to a study cited by the WTO, the increase in the cost of living was 52 percent higher for the poorest households than for the richest households.
“We need open trade, (…) but we also need complementary measures,” said Ralph Ossa, chief economist at the WTO. “If you want to help workers, you have to make sure you have the necessary national measures in place to help them seize opportunities.”
