This time the warning is not from non-descript quarters; it's a forceful one jointly issued by the three most important world bodies -- the International Monetary Fund (IMF), the World Bank (WB) and the World Trade Organisation (WTO). In the wake of anti-globalisation tendencies gaining momentum, the world bodies are close to foreseeing a bleak scenario ahead that they believe may turn the table to cause serious harm to global economy, trade and commerce.
More precisely, it is Donald Trump's pro-protectionist rhetoric threatening a new era of protectionism that has prompted a joint move from the three organisations. Warning that the role of trade in the global economy was at a critical juncture, the three multilateral bodies said in a joint report that the opening up of markets had been good for growth but admitted that action was needed to help the "left behind" communities.
Global economy, no doubt, has been doing fairly good despite many odds, but increasing protectionism from none other than the most advanced economies is set to pose real threats to the growth. The IMF Chief has summed up the phenomenon as a 'sword of protectionism' hanging over world economy.
Unfortunately, this is a major twist in global economics at a time when trade and commerce across the world has recovered from a slump and is gaining momentum. In a speech in Brussels prior to the release of IMF's latest global growth forecasts, IMF Managing Director Ms Christine Lagarde said the world's economic recovery was strengthening. A broad-based upswing in manufacturing activity in the rich economies, stronger growth in developing economies and the benefits of higher commodity prices for low-income countries were all contributing to stronger global growth. "The good news" said Ms Lagard, "is that after six years of disappointing growth, the world economy is gaining momentum as a cyclical recovery holds out the promise of more jobs, higher incomes and greater prosperity."
The IMF said in January, it expected the world economy to grow 3.4 per cent in 2017 after expanding by 3.1 per cent in 2016. In this context, the IMF Chief mentioned that in the hyper-connected world, national policies tend to have major spillovers across borders. She further added that plenty of uncertainty, most of it political, still hung over the global economy. She declined to name Donald Trump as a factor, or to identify either the UK's decision to leave the EU. However, in a veiled rebuke to Mr Trump and his fellow populists, she warned that any shift to protectionism would backfire, as would any move to dismantle the international institutions that had helped govern the global economy for more than 70 years. She warned against what she called 'the sword of protectionism hanging over global trade; and tighter global financial conditions that could trigger disruptive capital outflows from emerging and developing economies.'
In a sign of consensus, the WTO mentioning the recovery of global trade as a reprieve spoke of the dread that looms in the form of protectionism. It said that it expected global trade volumes to grow 2.4 per cent in 2017, up from what it called a "very weak" 1.3 per cent in 2016. But if the cycle now gets turned, it would have a multiplier affect in the form of disrupted supply chains, reduced global output, and inflated prices of production materials and consumer goods. This would hurt the low income countries most.
This is the first time that all three multilateral global agencies have come together to condemn the self-centric attitude of the advanced countries that they consider a serious blow to the architecture of global cooperation and welfare. The three organisations said they wanted to stress the "role of supporting domestic policies and prompt attention to those individuals and communities at risk of being left behind. Key policy initiatives such as training, temporary income support, job search assistance and targeted trade adjustment assistance are important. Approaches beyond labour market policies - such as education, housing and regional policy - are also needed."
While acknowledging that bilateral and regional trade deals had a role to play, their report said a strong global trading system based on the WTO was critical. "Strong, well-enforced trade rules help to promote competition and to reassure citizens that international trade is evenhanded" said their report. The world needed more trade and international co-operation, while governments also needed to recommit to the international system. On the other hand, rise in global protectionism stemming from a backlash against free trade and globalisation could have significant impact on economic growth, poverty levels and even on the potential for the most undesirable military conflict.
What is seriously at stake that the report did not clearly mention is that advanced countries in a bid to strongly stick to protectionism might depart from the many commitments they made to help out the less advanced and developing countries. A good deal of these commitments actually forms the core principle on which the WTO is set to move ahead with its multilateral goals, including having the developing countries on board.
All said and done, it still looks uncertain whether the international agencies have the tools and strength to prevail on the protectionist mindset of the advanced countries at this critical geopolitical juncture.
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