Per Jacobsson Lecture 2024 — Ngozi Okonjo-Iweala: “Delivering on new global challenges: How can we keep multilateral coherence whilst re-imagining the multilateral trading system?”

Excellencies, Dear Raghu, Minouche, Maury, ladies and gentlemen, friends,

Thank you. What an honor to follow in the footsteps of previous Per Jacobsson lecturers – all the more so in this 80th anniversary year of the Bretton Woods Conference.

We are living in troubled times – something Per Jacobsson knew well. So far as trade is concerned, the times are not only troubled, they are tense. Trade is sometimes blamed and scapegoated for poor outcomes that really derive from macroeconomic, technology, or social policy, for which trade is not responsible.

Trade policies and tools are being deployed not just to solve trade-related problems, but also to try to address security and geopolitical concerns.

As unilateral measures or threats thereof become increasingly widespread, trade policy has been getting more restrictive. In recent months, the US, the EU, Turkey, and Canada have introduced new tariffs and countervailing duties on Chinese electric vehicles and other products, including steel. China has countered with WTO disputes and measures against EU products such as dairy, pork, and brandy. 

These are among the over 130 new trade-restricting measures recorded by the WTO Secretariat since the start of this year. This number represents an 8% increase to the stockpile of over 1600 restrictive measures introduced between 2009 and 2023, which as of last year were already affecting over 10% of world goods trade. In addition, WTO members initiated 210 trade remedy investigations in the first half of 2024 – nearly as many as in all of 2023. While not all will culminate in the imposition of duties, investigations have a well-documented chilling effect on trade. And I haven't even mentioned subsidies yet. 

Frictions are manifesting as trade disputes. Six of the eight WTO disputes initiated this year deal with green technologies, particularly electric vehicles.

I hope we are not on a path that leads back to the sort of economic disorder that came before Bretton Woods – disorder that was followed by political extremism and war.

It was precisely to avoid a repeat of such circumstances that the multilateral economic institutions were created. My concern today is that we have forgotten this lesson - that we have forgotten the good these institutions have done.

Walking away from the legacy of Bretton Woods, including the trading system, would diminish the world's ability – collectively and at the national level – to respond to problems affecting people's lives and opportunities.

I will argue that there is a better path forward: re-imagining the global trading system and the rest of the multilateral economic architecture to help us meet the technological, environmental, social and geopolitical challenges of our time. To succeed, its various components must work in concert – an idea we have come to call 'coherence'.

In the 1940s, the overall thrust of coherence was that trade, reconstruction financing, and monetary policymaking need to be in harmony with each other, and anchored in institutions and rules across countries, to promote growth, prosperity, and peace.

Today, delivering lasting improvements to people's lives and livelihoods requires us to solve problems of the global commons.

The notion of coherence across different policy areas would have made sense to Per Jacobsson. His convictions about sound money, and its importance for durable growth and recovery, were shaped by his own experiences. As a young man he saw the collapse of global economic integration amid the First World War. From his position at the League of Nations in the 1920s, he witnessed the failed attempts by leading economies to establish effective international coordination on global finance and trade – a memory that echoes uncomfortably today.

We know what happened when the downturn came at the end of the decade. Vicious circles emerged: of falling output, deflation, banking and financial crises, trade protectionism and retaliation, and exchange rate chaos. Countries retreated into increasingly isolated economic blocs.

The experience of those years was seared into the consciousness of the officials who gathered in Bretton Woods in July 1944. US Treasury Secretary Henry Morgenthau opened the conference by looking back at what he called "the great economic tragedy of our time." I quote "We saw currency disorders develop and spread from land to land, destroying the basis for international trade and international investment and even international faith. In their wake, we saw unemployment and wretchedness — idle tools, wasted wealth. We saw their victims fall prey, in places, to demagogues and dictators. We saw bewilderment and bitterness become the breeders of fascism and, finally, of war."

What Bretton Woods delivered

The genius of Bretton Woods was that it turned the vicious circles of the 1930s into virtuous ones, by recognizing that macro-financial stability, reconstruction and development, and trade went hand-in-hand.

Instead of beggar-thy-neighbor policies, countries would treat trade, monetary issues, and even domestic macro-economic policies as matters of common interest.

Instead of excessively rigid or chaotically fluctuating currencies, there would be orderly, rules-based management of exchange rates and balance of payments problems.

Instead of underinvestment, there would be long-term financing for reconstruction and expanding productive capacity.

Instead of quantitative restrictions, prohibitive tariffs, and bilateral clearing, there would be a coordinated lowering of trade barriers, and freedom to undertake international payments and current account transactions.

The idea of coherence across policy fields, with trade as a unifying theme, was baked into the system from day one. Promoting the "balanced growth of international trade" is written into the founding mandates of both the IMF and the World Bank – not as an end in itself, but as a means to higher employment, productivity, and incomes.

The trade leg of the stool, alongside the Bank and the IMF, was supposed to be the International Trade Organization, but it ran aground in the US Congress. A parallel negotiating process in 1947 produced the General Agreement on Tariffs and Trade, which was nominally temporary and did not require Congressional ratification. Successive rounds of GATT negotiations substantially reduced barriers to trade. The growing number of "contracting parties" used the GATT to resolve and avoid trade disputes. By the 1960s, global trade was growing faster than output.

The decades that followed Bretton Woods and the Marshall Plan delivered a breathtaking recovery from the devastation of the Second World War.

Strong growth in the 1950s and 1960s saw per capita incomes in Western Europe and Japan begin to converge with those in the United States.

Major European currencies achieved full convertibility in 1958, when Per Jacobsson was leading the IMF.

These gains, however, were largely confined to industrialized countries.

Most newly independent developing countries continued to lose ground in relative terms, as they struggled with declining terms of trade for their commodities.

But a handful of poor economies in East Asia started trying to use increasingly open external markets to pursue export-led development.

Discordance and reinvention: the 1970s and 1980s

Coherence gave way to discordance in the 1970s, with the oil shocks, stagflation, the advent of floating exchange rates, and a wave of emerging market debt crises.

By the mid-1980s, the success of the so-called Asian tigers had become a compelling example, inspiring many developing country governments to pivot from inward-oriented to export-oriented development strategies.

At the international level, growing frustration with ad hoc protectionism and "à la carte" approaches to GATT strictures created demand for more rules-based trade cooperation.

The Uruguay Round negotiations from 1986 to 1994 broadened the reach of multilateral trade rules to cover services and intellectual property, filled longstanding gaps with respect to agriculture and textiles, and unwound much of the protectionism that had emerged in the preceding years.

The nominally provisional GATT was transformed into the World Trade Organization, with a binding dispute resolution mechanism that enhanced the predictability offered by its expanded rulebook.

The preamble to the Marrakesh Agreement establishing the WTO opened up new vistas for the organization, defining its purpose as using trade not just to raise living standards and create jobs but to advance sustainable development - thus introducing environmental concerns that were absent in the 1940s.

1990 to 2020: A "golden period of economic development", but clouds on the horizon

The Uruguay Round and the end of the Cold War would mark a second era of coherence and virtuous circles across the trading system, the World Bank, and the IMF. And this time, the benefits were spread much more widely across countries and people.

The WTO became an anchor for outward-oriented economic reforms in many emerging markets and developing economies.

Increasingly open and predictable trade became a stronger driver of development, productivity, specialization and scale.

Better macro-financial policies bolstered growth – and trade performance – in many emerging markets and developing countries. So did improved human capital and physical infrastructure.

Trade and modern supply chains became powerful sources of disinflationary pressures.

Market-oriented reforms in China, Eastern Europe, India and other developing economies brought them into the increasingly global division of labor. Trade boomed, incomes rose, and poverty plummeted.

Between 1995 and 2022, as low- and middle-income economies nearly doubled their share in global exports from 16 to 32%, the share of their populations subsisting on less than US$2.15 per day fell from 40% to under 11%. Over 1.5 billion people were lifted out of extreme poverty.

Since 1995, per capita incomes in low- and middle-income countries have nearly tripled, and global per capita income increased by approximately 65 percent.

For the first time since the industrial revolution two centuries earlier, per capita incomes in rich and poor countries began to converge.

Gains for poor countries did not come at the expense of rich ones. Examining the United States since 1950, researchers at the Peterson Institute for International Economics (PIIE) have shown that international trade boosted the economy by the equivalent of $2.6 trillion in 2022, or about 10% of GDP. The gains from trade would be even larger for small, open advanced economies.

In a Foreign Affairs piece this year, Dev Patel, Justin Sandefur, and Arvind Subramanian called the years between 1990 and the start of COVID-19 pandemic in 2020, I quote, "history's most golden period of economic development".   They argue that the rapid increase in trading opportunities was "perhaps the most important enabler" of convergence.

Research from our new World Trade Report backs them up: the pace of income convergence of low- and middle-income economies is strikingly correlated with their participation in global trade, as measured by a size-adjusted ratio of trade to GDP. Our simulations suggest falling trade costs account for as much as one-third of the convergence.

To be clear, the period was not golden for everyone. Developing countries with lower trade participation or greater commodity-dependence – mostly in Africa, Latin America and the Caribbean, and the Middle East – lagged on convergence. And in some rich countries, many people felt left behind, and their frustration started to fuel a political backlash against trade.

Multilateral rule-making on trade began to falter, with the failure of the Doha Round of WTO negotiations.

Nevertheless, in 2008 and 2009, when the world economy faced its worst financial crisis since the 1930s, the system worked.

International markets stayed broadly open. The rules and norms of the multilateral trading system helped governments contain protectionist pressures.

Alongside fiscal and monetary support, trade was a powerful shock absorber. Crisis-hit countries could rely on predictable market access elsewhere to absorb their excess supply, preventing growth and development from getting derailed.

The WTO, the World Bank, and the IMF also worked together productively on the macro-micro policy nexus.

For instance, when trade finance dried up during the credit crunch, despite being extremely low-risk, the three institutions joined hands to encourage G20 members and international financial institutions to step in with a $250 billion support package.

Since the financial crisis, the multilateral trading system, with the WTO at its core, has continued to deliver economic benefits, despite rising geopolitical tensions and tariffs between the US and China, the disabling of the Appellate Body, and the failure to reach agreements in long-running negotiations such as those on agriculture. Global trade kept reaching new highs through the 2010s, and over 75% of global goods trade continued – and continues today – to operate on core WTO tariff terms.

When COVID-19 hit in 2020, the norms and rules of the multilateral trading system mostly did their job again. Trust in trade was damaged by initial missteps, as governments enacted export restrictions on medical supplies and vaccines. But governments generally refrained from widespread protectionism, allowing food and other essentials to flow across borders to where they were needed. Goods trade rebounded strongly from the lockdowns and was soon setting new records. Cross-border supply chains churned out products needed to fight the pandemic, from face masks to vaccines. Trade in digitally-delivered services boomed, propelled by the same technologies that allowed so many of us to work from home.

Goods and especially services trade are now well above pre-COVID levels.  Last year, global trade was worth a near-record $30.5 trillion, in a $105-trillion world economy.

Re-imagining the Multilateral Trading System with coherence

As we saw at the outset, however, these successes did not forestall the challenges we now face in global trade. While trade has been largely resilient, signs of fragmentation are now visible.

So it's not difficult to imagine a return of vicious circles - trade restrictions, efficiency losses, slower growth, higher prices, costs imposed by extreme weather and food insecurity, and public frustration and anger.

Allowing the vicious circles to take hold and the world to fragment into isolated trading blocs would be costly. The WTO has estimated longer term global GDP losses in the order of 5% were the world to fragment into two like-minded trading blocs. IMF estimates are in the order 7%. We cannot afford this!

And that is why we need to re-imagine the multilateral trading system to solve modern challenges and address modern vulnerabilities.

This means re-imagining coherence as well. Trade alone was insufficient in 1944, and trade alone is insufficient to build the more secure, sustainable, and inclusive world we want today.  The way forward for trade will increasingly be about “WTO and” - trade in tandem with other issues, and policies that support the original vision of coherence and do not misuse trade tools, for coercion, as a weapon, or to undermine competition.

Our unfinished business from 1944 was elegantly illustrated by a recent blog post from IMF chief economist Pierre-Olivier Gourinchas and his team.

They showed that China’s growing and contentious trade surplus, and the US’s widening trade deficit, are the result of domestic macro-economic forces, rather than the product of trade and industrial policies.

“Homegrown surpluses and deficits call for homegrown solutions,” they argued, suggesting demand-boosting measures in China and fiscal consolidation in the US.

As for concerns over industrial policy, they said the right response was to strengthen WTO rules, not to restrict trade.

They cited the WTO's recent China Trade Policy Review which showed new data of billions of dollars in subsidies going to manufacturing. Urging China to be more transparent about its subsidies.

The blog shows the coherence mandate in action but it also illustrates how even today, the global trading system is paying a price for shortcomings of macro-economic policy.

As Sylvia Ostry, one of my predecessors at this podium, said in 1987, "Trade policy is no substitute for macro policy."

Let’s now turn to the new trade agenda, and look at three areas where future prospects for people and the planet require trade to be re-imagined, and complemented by other policy levers pulling in the same direction.

First, the environmental agenda, above all climate change and getting to net zero by mid-century.

Trade is indispensable to deploy low-carbon technologies globally. Trade lets countries share the burden of developing new green tech. Scale economies and competitive pressures associated with trade help drive down unit costs, making it possible for renewables to undercut fossil fuel energy.

Trade also allows us to leverage 'green comparative advantage', a concept that our chief economist, Ralph Ossa, has done much to advance. The idea is straightforward: just as individuals and countries can reap economic gains by specializing in what they are relatively good at, the world can reap environmental gains if countries specialize in what they are relatively green at.

If countries with abundant clean energy can produce more energy-intensive goods and services, while importing energy-light products from places where clean energy is scarce, and vice versa, global emissions fall much more than they would have absent that trade. And in fact research from the University of Zurich  suggests that as much as one-third of global emissions reductions could come from this kind of specialization linked to green comparative advantage.

As Ricardo Hausmann at Harvard has observed, fossil fuels are cheap to transport, but wind and solar energy are not. This makes parts of Africa, Central Asia, and Latin America with high green energy potential attractive destinations for investment in energy-intensive industries, including the production of green hydrogen.

Global cooperation on internalizing carbon costs would incentivize greener sourcing everywhere. Nevertheless, we are already seeing moves in the right direction as in Kenya, which has attracted a billion-dollar investment to build a geothermal-powered low-carbon data center.

Parenthetically, a similar dynamic exists for water, provided it is valued correctly. A recent report of the Global Commission on the Economics of Water, which I co-chair, shows that with trade one can also promote the notion of a hydrological comparative advantage. Trade can help mitigate water scarcity by allowing countries with abundant hydrological resources to specialize in producing water-intensive products for export to water-scarce nations.  Such virtual water trade offers agricultural export opportunities, for example, to those regions including countries in Africa with under-utilized ground water resources and land.

But just as environmental policy coordination could accelerate climate action, policy fragmentation could weaken it.  There is a genuine risk that trade frictions associated with carbon pricing, green subsidies, and other climate policies will escalate into trade restrictions and retaliation, harming emissions reduction as well as trade.

We should seek to pre-empt such frictions and disputes by establishing shared frameworks for trade and climate policy. The goal would be to maximize emissions reduction and green innovation, while minimizing negative spillovers, trade tensions, and wasted public resources on subsidy races that most countries may not even afford to participate in.

To this end, the WTO Secretariat is coordinating a carbon pricing task force comprised of the IMF, World Bank, OECD, UNCTAD, and UNFCCC, where we are working to develop shared carbon metrics and ultimately a global carbon pricing framework against which we can benchmark national policies to aid interoperability of approaches. We have also joined hands with the IMF, the OECD, and the World Bank to explore approaches to enhance greater transparency with respect to subsidies. And we are working with the steel industry to help them promote interoperability in decarbonization standards, reducing transaction costs and facilitating trade and investment in green steel.

Reforming the over $1.2 trillion in direct global annual fossil fuel subsidies, the $630 billion in trade-distorting agricultural support, and the $22 billion in harmful fisheries subsidies (which the WTO Fisheries Subsidies Agreement is delivering) should be a no-brainer. Some of the resources freed up could be repurposed to support green innovation and a just transition for poor countries.

The second set of opportunities for the Multilateral Trading System deals with diversifying and decentralizing supply chains – and doing so in a manner that brings in countries and communities that remain on the margins of the global division of labor.

More diversified global production networks would enhance supply security in an increasingly shock-prone world, while extending the benefits of trade to places and people that have not shared adequately in them. Greater diversification would also help lower the geopolitical temperature around supply chain relationships, by making them harder for any single country to weaponize.

As the pandemic and the war in Ukraine made abundantly clear, overconcentration makes supply chains vulnerable in a crisis.

The advent of COVID-19, concentrated minds on the fact that 80% of world vaccine exports came from only ten countries. This meant export restrictions in a few of them severely disrupted global access to vaccines – especially to Africa, which relied on imports for 99% of its jabs.

Decentralizing value chains and building up pharmaceutical production capacity in Africa and other developing country regions for instance would make the global supply base more resilient in the event of future pandemics, whilst more closely integrating these regions in to world trade, and making them part of a more prosperous and healthy world.

Critical minerals is another sector where there are major opportunities to mitigate concerns about overconcentration in mining and especially processing, while stimulating growth in developing countries. 

Exports of minerals critical for the low-carbon transition, like lithium, cobalt, nickel, and rare earths, have grown rapidly to reach USD 320 billion in value in 2022, and are set to increase much more in the years ahead. Africa, for example, represents 40% of estimated global reserves of cobalt, manganese, and platinum; and 12% of world exports of critical minerals, but only 3.8% of exports of processed minerals.

By investing in processing these minerals within the regions including in Central Asia and Latin America where they are found, we can promote value addition and job creation while removing supply bottlenecks that currently threaten to hold back the low-carbon transition.

Furthermore, to the extent that this process is powered by green hydrogen and other kinds of clean energy, it would harness the green comparative advantage I mentioned earlier and thereby help the developing regions increase their share in world trade.

It would be green growth and green trade - the 're-globalization' we want.

Finally, there are areas where cross-border commerce is flourishing, but where new rules are necessary to foster predictability and lower barriers to entry for smaller businesses and developing economies.

The fastest growing segment of international trade is in services delivered across borders via computer networks. Trade in digitally-delivered services – everything from streaming video to remote consulting – has quadrupled since 2005, reaching $4.25 trillion in value last year. These services have become an increasingly important driver of growth and job creation.

The commercialization of artificial intelligence promises to further accelerate digital trade. A forthcoming WTO report describes how AI could reduce trade and transaction costs, improve supply chain logistics, and shift countries' comparative advantages.

I always say the future of trade is digital, but the future of protectionism could be as well. Imports of digital services could become as contentious as manufactured imports have, or more so – inviting digital barriers that are even simpler to put in place than their counterparts for trade in physical goods.

Putting in place some basic rules for digital trade would reduce the risks of such reversals. The 90-odd members participating in plurilateral e-commerce negotiations at the WTO are now looking to conclude a first phase agreement on a series of practical measures to facilitate digital trade, from common rules for e-signatures and payments, to paperless trading, and consumer protection. Tougher issues like cross-border data flows – a critical element in AI – will be dealt with in a second phase of negotiations.

Delivering on this agenda for the future will involve strengthening all of the WTO's functions: monitoring and transparency, negotiations, and dispute settlement.

With respect to our dispute settlement system, we are working to reform it. The reform process has wide buy-in, and talks are advancing, including on issues like appeal review and accessibility to ensure that developing countries can use the system. There are delicate issues here around how national security exceptions will be handled – it is going to take work!

We will need to negotiate and implement new rules in important areas like the environment. Some members are showing the way: New Zealand, Costa Rica, Switzerland, and Iceland recently agreed to liberalize trade in a list of hundreds of environmental goods, and they are trying to get others to join.

We are working on getting an Agreement on Investment Facilitation for Development, negotiated by three-quarters of our membership, into the WTO rulebook. This agreement will help developing economies attract FDI by simplifying investment-related procedures and sweeping away red tape.

We will also need to review existing rules to make them fit for purpose. Instead of members doing an end run around our Agreement on Subsidies and Countervailing Measures to introduce industrial policies, it would be better to update that agreement. It actually dates back to 1994 – seven years before China joined the WTO,  [a time when climate concerns were barely on the radar screen, and the conventional wisdom was that state-owned enterprises were a fading relic of a bygone era]. Members could decide to create space for subsidizing the green transition. Shared ground rules would help minimize negative spillovers and related trade tensions, while maximizing efficiency in the use of public resources. 

Excellencies, ladies, and gentlemen. Let me now conclude.

As I said at the start, these are tense times for trade. There are political dynamics outside our control. But we can treat the challenges we face as opportunities to re-imagine the global trading system.

We can build global resilience whilst making the system more supportive of inclusive growth and environmental sustainability.

We can make existing trade rules more fit for purpose rather than go around or against them and we can make new rules fit for the time.

We can help developing countries left behind by the recent wave of global economic integration.

We can have interdependence without overdependence.

While nothing is ever easy at the WTO, we are moving in the right direction. We will manage what we can manage. Control what we can control. But we will need your help.

Over the past eight decades, the multilateral economic architecture, including the trading system, has delivered a great deal for the world. We have reinvented it before. We can do so again, for people and planet.

Nelson Mandela once wrote that "after climbing a great hill, one only finds that there are many more hills to climb." I ask you, let's climb these hills together.

Thank you.

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