IMF Review Weighs How to Harness Trade for Growth

Trade can help prevent “new mediocre” in global economy

Countries should rethink role of trade in growth prospects, strategy

Rapidly changing trade landscape has implications for IMF’s work

In its regular five-year review of trade, the IMF takes stock of the changes in the trade landscape and discusses key issues for the institution’s future work agenda.

A revival of trade growth, which has been slowing in recent years, has the potential to significantly impact growth in both individual countries and the global economy as a whole, the report says.

Speaking to IMF Survey, two of the report’s authors—Martin Kaufman and Varapat Chensavasdijai of the IMF’s Strategy, Policy, and Review Department—discuss the growth potential that trade reform holds and its catalytic effect on other structural reforms.

IMF Survey : Why is global trade slowing down?

Kaufman: Following the global financial crisis, trade slowed because there was a synchronized global slowdown. There was a sharp recovery in global trade in the years that followed, but more recently, trade has been growing very slowly compared to past rates. But, we wondered, is this a cyclical (temporary) phenomenon or a more structural (permanent) one?

Chensavasdijai: About half of the slowdown in trade is due to cyclical factors, we found. But there are other reasons that are more structural. These have to do with maturation of processes that led to the fast growth of trade over the last couple of decades—for instance, the emergence of global value chains. More and more final products—such as automobiles—are produced in one country using inputs from many others, partly as a result of fewer trade barriers and technology-led declines in transportation and communication costs. These global value chains were very important in terms of providing trade innovation when they first appeared.

As this business model matures in the countries that have participated in this process, it is not contributing to trade growth the same way it did initially. The same is true for the addition of new members to the World Trade Organization (WTO). Moreover, efforts to advance multilateral trade policy have been difficult and slow. All these factors have weighed on trade growth.

IMF Survey : Why is it important to get trade growing again in this environment of low global growth?

Kaufman: The IMF is focusing on policies that are needed to make sure that, over the medium term, global growth doesn’t settle into a...