Globalizing to Protect National Security, the Poor, and the Environment

The winds of public opinion and politics have been blowing toward de-globalization for a few years now, not just under the Biden and Trump administrations in the US, but in countries around the world.

The complaints about globalization come in (at least) three categories: it’s bad for national security by strengthening geopolitical rivals and creating risky and overstretched supply chains; it’s bad for workers and the poor; and it’s bad for the environment. The World Trade Organization takes on all three arguments in its World Trade Report 2023: Reglobalization for a Secure, Inclusive, and Sustainable Future.

The concerns that trade might reduce national security seems to be on the rise. The WTO report offers a chart of the number of quantitative trade restrictions around the world that refer to Article XXI, the “Security Concerns” exception to freer trade. The number has tripled in the last decade.

Concerns about trade and national security come in several parts. One is concern over the reliability of supply chain ; that is, trade makes the US economy dependent on long supply chains that can be disrupted. But the obvious lesson here would seem to be to have a well-diversified set of supply chains from many sources, not to have fewer global suppliers.

More broadly, it’s useful to remember that a fundamental purpose of the world trading system has been the idea that nations which trade are less likely to be nations which fight: to put it another way, when two nations that have been trading fight, they face both the costs of war and the costs of disrupted trade. The WTO report notes:

Security and geopolitical concerns have also always been an important aspect of the multilateral trading system. The founding of the WTO’s predecessor, the General Agreement on Tariffs and Trade (GATT), was in part a response to the disastrous effects of two world wars and the first era of deglobalization in which bloc-based trade had started to dominate multilateral cooperation. As one pillar of the international system established in the aftermath of the Second World War, the GATT’s aim was to promote cooperation and address the underlying causes of the war in combination with the United Nations, the World Bank and the International Monetary Fund (IMF) …

I certainly make no claim that these global institutions are perfect, or anywhere near it. But it’s unwise to assume that the alternatives would be more peaceful or secure. Is a Chinese economy that depends on a substantial export sector more or less likely to invade Taiwan, knowing the economic pushback that would result?

The concerns that trade contributes to poverty, inequality, or economic disruption look differently depending on your viewpoint. If you are living in a less developed country, the ability to export goods and services to the high-income countries of the world, and to benefit from technology transfer from those countries, is a core component of your hopes to reduce poverty and raise the standard of living (which includes, remember, education, health, and a cleaner environment) over time. I am not aware of any countries that have reached a high standard of living while separated from international trade. From a global perspective, it seems clear

From the perspective of any individual country, like the United States, the effects of trade are a mixture of overall gains, but at the expense of targeted disruption. But any economy is being continually disrupted by a number of factors: new technologies for consumer goods, new technologies for production of goods, shifts in consumer demand, better-managed and worse-managed companies, and international trade. These disruptions are part of the price paid for rising standard of living over time: growth doesn’t happen, nor do people improve their education, health care, and the environment, without disruptive change. The US economy, with its giant internal market, is actually not overly exposed to international trade: exports and imports are each about 12-14% of US GDP in a given year. For the US economy, trade is one disruptor among many, and almost certainly not the biggest one. Also, if global trade was notably reduced, it would be disruptive as well, for industries from farming to pharmaceuticals to machinery, and many more. Many other high-income countries are more susceptible to being disrupted by trade than the United States (that is, imports and exports are a higher share of their GDP), but they have more policies in place to reduce disruption and reduce inequality.

The concerns that trade contributes to environmental decline includes only half the story: on one side, yes, trade is part of production and increases in the scale of production will tend to increase pollution. But the other side is that trade also creates efficiency gains (after all, that is how trade provides mutual benefits), and shifts the mix of products (for example, potentially toward trade in technologies and practices that can reduce pollution). The WTO writes:

When measuring the impact of trade on the environment, it is important not only to account for the amounts of pollution associated with trade, but also to consider a situation without international trade. In such a hypothetical case, domestic production would have to rise to meet consumer demands while maintaining the same standards of living. Consequently, the reduced pollution from less trade would be partly offset by increased pollution from domestic production. Moreover, without trade, economies lacking certain resources or production capacity would not be able to consume many products, while some producing economies would not be able to expand investments due to the limited scale of their domestic market. Some studies suggest that international trade increases carbon dioxide (CO2) emissions by 5 per cent, compared with a scenario without trade. Moreover, the benefits of international trade exceed its environmental costs from CO2 emissions by two orders of magnitude (Shapiro, 2016). Similar findings have been observed for sulphur dioxide (SO2) emissions, where trade contributes to a 3-10 per cent increase in emissions compared to a scenario without trade (Grether, Mathys and de Melo, 2009).

In addition, if you believe that international agreements will need to play a useful role in addressing global environmental issues, then it’s important to remember that trade agreements can play a role in facilitating environmental agreements. Here’s the WTO:

Greater international cooperation is key if trade is to play an even more important role in environmental sustainability. The benefits of re-globalization include creating a more integrated global environmental governance system. Importantly, when combined with appropriate environmental policies, trade can significantly advance the green transition by unlocking green comparative advantage. This would enhance the ability of developing economies to tap into new trading opportunities arising from the green transition.

A reasonable reaction to the World Trade Organization discussion, it seems to me, is to say something like: “It’s complicated. The appropriate goal should be to favor the kinds of trade that improve national security, reduce poverty/inequality, and improve the environment, and to discourage trade that does the opposite.” Fair enough! I strongly suspect that if you believe trade can potentially play a meaningful positive role in these three issues, and not an inevitably negative one, the WTO would view its report as a success.