IMF chief Christine Lagarde has underlined the need to redouble efforts to create a more inclusive global trading system amidst signs that the developed countries, including the US, were resetting trade policies which were protectionist in nature.
Addressing a conference on globalisation, ahead of the annual meeting of the International Monetary Fund (IMF) and the World Bank here yesterday, she said, “The best policy response to all…challenges is not to turn our back on trade. “Instead, we need to redouble our efforts to create a more inclusive global trading system that works for all,” the IMF Managing Director said.
While she did not name any particular country, she said recent analysis by the IMF, World Bank, and WTO shows that, when it comes to trade, they do not need to choose between inclusiveness and economic growth as long as they have the right policies.
Her remarks came amid Britain’s move to exit from the European Union (EU) and US President Donald Trump’s decision to withdraw from the Trans-Pacific Partnership (TPP).
Lagarde said that for advanced economies, a key challenge has been competition from lower-wage countries. “Almost three decades ago, China, India, and the former communist countries started to engage more deeply with the global trading system,” she said.
“This process had far-reaching effects: The size of the global workforce effectively doubled, putting downward pressure on wages, especially for lower-skilled workers in advanced economies.
“This has contributed to a decline in manufacturing employment in the advanced world, although here, labour-saving technology improvement has played a bigger role,” she said.
She also said that many advanced economies have been facing stagnating median wages and higher income inequality — all driven by a range of factors besides trade, but occurring as trade has expanded.
Lagarde said that for emerging and developing countries as well, trade has come with negative side-effects. “These include rising income inequality, increasing wage premia for skilled workers, and the need to support displaced workers who are looking for new jobs in other industries,” the IMF chief said.
Noting that the world is highly interconnected through a constant flow of goods, services, capital, people and ideas, she said that this economic integration, or globalisation, has delivered tremendous prosperity to the world. “It has fostered a sharp decline in global income inequality — that is inequality between countries. It has also, over the past two decades, helped reduce by about half the share of the world’s population living in extreme poverty,” Lagarde said.
Further, living standards have been boosted in all countries, including in advanced economies, where consumers and businesses are benefiting from lower prices and a greater variety of goods.
“Trade is particularly important for poorer consumers, because they buy relatively more low-price imports. That is also why they are most affected by trade restrictions,” she said.