New research by the Hinrich-IMD Sustainable Trade Index (STI) shows that rising protectionism and fragmentation are putting the benefits of trade at risk, hindering countries from reaching their sustainable development goals.

The 2023 report finds evidence of a trend called “slowbalisation”, which is driven by geopolitical tensions, increasing protectionism, and shifting global supply chains which is making it harder for countries to reap the benefits of trade while mitigating its negative impacts.

This year’s index suggests that the world’s largest economies, which are best positioned to lead the way in reversing the trend of slowbalisation, are in fact among the major countries that are raising tariffs and non-tariff barriers, and slowing trade liberalisation.

Kathryn Dioth, CEO of the Hinrich Foundation, noted that global trade is experiencing fragmentation that threatens to undermine the achievements of globalisation over the last 70 years.

Responding to Post-Pandemic Inflation and Geopolitical Tensions

According to The CEO, protectionist trade policies are being enacted in the name of responding to post-pandemic inflation and geopolitical tensions, but this is leading to negative consequences.

Arturo Bris, the director of IMD’s World Competitiveness Center, pointed out that the current global trade landscape is being challenged by geopolitical and health issues, making it even more important to streamline supply chains and reduce costs, even if this comes at the expense of social or environmental considerations. The Hinrich-IMD STI sheds light on this trade-off, Bris said.

In contrast to the large trading nations, the smaller nations have shown a negative trend in societal indicators like forced labour and trade in goods at risk of modern slavery. They have also demonstrated negative trends in environmental indicators such as energy intensity.

According to the index’s authors, these developments present significant challenges for the role of global trade in advancing the objectives of human and natural capital.

In the words of Chuin Wei Yap, Director of the Hinrich Foundation’s International Trade Research Programme, “We must be aware of the challenges that global trade is facing. The STI serves as a blueprint for how we see the world and how we view policy as a balancing act between the incredible benefits of trade and its potentially devastating effects on society.”

Dioth further emphasized the need for immediate dialogue about the future direction of trade policy, as a way to help guide the world toward sustainable globalization.

The Hinrich-IMD STI is an annual publication that measures the readiness and capacity of 30 nations to participate in the international trading system in a manner that supports long-term economic growth, environmental protection, and societal development. The index is calculated by averaging the performance of each economy across a set of 71 indicators.

Relatedly, the World Trade Organisation (WTO), in its 2023 World Trade Report, warned of the rising influence of regional trade blocs, the emergence of a more fragmented global economy, and an escalation of trade restrictions as a result of the hostile relationship between the United States and China.

Furthermore, the report noted that the Russian invasion of Ukraine has resulted in a focus on food security, leading policymakers to employ trade restrictions as a means of protecting food supplies.

In response to the findings of the WTO’s World Trade Report 2023, WTO Director-General Ngozi Okonjo-Iweala urged members to take action to improve the global trading framework, reduce protectionism, and build a more resilient and inclusive global economy.

Ngozi Okonjo-Iweala also emphasized that for the world’s poorest countries, economic recovery would not be possible without a multilateral trading system that is stable, open, predictable, rule-based, and fair.