The global economy has expanded greatly since the early 1980s, thanks to technology breakthroughs, the opening of markets and trade being more accessible. Today, trade generates $15tn annually. Nearly $5tn in goods and services flows in and out of the US alone each year.
This development has affected people across socioeconomic classes. Former US Treasury Secretary Henry Paulson noted in a recent column that the average household income in America is about $10,000 more than it would have been without this trade progress. And the number of people living in extreme poverty dropped drastically from 1981 to 2010, according to the World Bank.
“Trade, with support from aid, has been responsible in the past few decades for the greatest reduction in poverty that society has ever witnessed, by driving economic growth across the globe,” says Peter Harris, Europe region director of sustainability at UPS. “It is therefore essential that we find ways to continue to trade ever more effectively.”
Due in great measure to the Great Recession and moderate economic recovery, the rate of global trade growth has slowed this decade. The World Trade Organization (WTO) forecasts that in 2016, it will be less than 3% for the fifth straight year. Factors like climate change, booming populations and cybersecurity concerns have left the future uncertain. Meanwhile, some critics believe that trade agreements such as the proposed Trans-Pacific Partnership (TPP) are not fair for everyone.
Officials and academics are seeking solutions not only to help businesses, but also for people across the globe.
Pros and cons of TPP
Much of the recent conversation about global trade has surrounded the TPP, which is currently awaiting ratification. The TPP covers 12 countries, including the US – and with them, approximately 800 million people and 40% of the global economy. Its provisions could bring down existing tax barriers to help increase agriculture, manufacturing and services exports among trading partners.
Customs agencies in the TPP countries are also working to improve electronic processing of data and advanced screening of packages. This would help reduce time, cost and complexity in trade.
Still, the TPP has become highly politicized. Critics say it goes against the interests of US workers who could potentially lose jobs to companies overseas. Proponents counter that the TPP could help trading partners among member nations to develop global supply chains in which their products are designed, sourced and assembled in many different countries – spreading wealth and making global trade more balanced.
“The notion that one nation’s success at exporting is another’s failure is no longer true,” says Leslie Griffin, senior vice president of international public policy at UPS. “The Trans-Pacific Partnership will create new opportunities for many players and give a needed boost to global trade.”
Bringing nations together
Caroline Freund, a senior fellow at the Peterson Institute, and other academics suggest a way that governments can soothe those who say they’ve been left behind by globalization: provide aid to workers who lose their jobs because of trade-related reasons. Those workers have legitimate concerns and needs. Still, experts like Freund maintain that trade’s benefits are too important to roll back.
“There’s always been this misconception out there that trade is a zero-sum game, and it’s not,” she says, “As we trade, the pie just gets bigger. Trade makes everyone better off. So, it’s great – but it’s not great for everybody all the time.”
Freund notes another major benefit: a balanced global trade ecosystem fosters peace. “Countries that trade a lot tend not to go to war [against each other],” she says. “It’s much easier to get countries to oblige on noneconomic issues when you already have this kind of business community that’s very intertwined.”
For proof, see the relationships between the US and many European nations over the past 70 years. “It’s not hard to argue that in Europe but also in the US, the post-World War II era has brought peace, wealth and stability,” says Marietje Schaake, a member of the European Parliament from the Netherlands who’s also a commissioner with the Global Commission on Internet Governance. “We shouldn’t dismiss what we have built together.”
Level the playing field in the digital age
One major argument is that global trade agreements focus only on helping big businesses. That could change as e-commerce continues to evolve, creating an environment in which small- and medium-sized companies can go global immediately – and thus compete head-to-head with major corporations.
“This is enabling the ‘entrepreneurial economy’, where large businesses face new competition and where small businesses see huge opportunities,” Griffin says.
For the first time in any trade agreement, the TPP includes language focused on helping small and medium-sized businesses. It addresses trade barriers that disproportionately challenge small businesses, including opaque customs regulations, complex trade paperwork and slow delivery of small courier shipments.
Making trade work for the environment
As the quantity of goods shipped worldwide increases, there’s an urgency to make trade more environmentally friendly.
“Trade is essential for global social and economic sustainability, but making these compatible with environmental sustainability is arguably the hardest challenge of all,” says Harris. “We will need dramatic improvements in technology to contain emissions as trade – and therefore goods movement – expands.”
Take the shift to “slow steaming” of ocean cargo, whereby ships deliberately go slower than their top speeds. This has had “a very significant reduction on carbon emissions,” according to Sean Doherty, head of international trade and investment at the World Economic Forum.
Trade agreements and technology will continue to evolve, and there will be even greater attention on reducing greenhouse gas emissions in the manufacture and delivery of goods worldwide. Governments and businesses alike will have to ensure these processes are effective as policies and protocols change in the years ahead.
“The key responsibility for lawmakers like myself is to look at how we can frame global trade in a rules-based system to ensure standards safeguarding the environment,” Schaake says. “That workers and peoples’ fundamental human rights are strengthened by agreements that provide a frame or embedding for global trade.”
To read more about these issues and see some of the solutions that have emerged, see the 2015 UPS corporate sustainability report.
This content is paid for by UPS
