MONTHLY MUSINGS

From the Chairman’s Desk


Mahesh Desai

IN December 2021, WTO came up with their World Trade Report 2021 which looked into the impact of the Covid pandemic on global trade. The report claimed that the pandemic has been a massive stress test on global trade due to significant disruptions in global supply chains. The pandemic led to a deceleration in global growth with global GDP falling 3.3 percent, indicating this to be the most impactful economic recession since World War II. The report further mentioned that in spite of such a depressing economic impact of the pandemic, global trade has shown some degree of resilience. According to the WTO’s most recent forecast, global economic output is projected to recover by 5.3 percent in 2021 partly due to the robust recovery in the manufacturing sector while services sector continue to remain depressed. The report further looks into the factors that have made the global supply chain both susceptible and resilient to such economic shocks and how an interconnected global trading system can help countries absorb such economic shocks. The report cites the example of climate change crisis where loss of habitat and human encroachment is increasing human animal interaction and risks of spreading zoonotic viruses. This report assesses the relationship of trade, trade policy cooperation, and the multilateral trading system to economic resilience. The report stresses that while it is true that trade can increase countries’ vulnerabilities and exposure to hazards, as well as facilitating the transmission of those hazards, through economic, financial, transport and digital linkages, trade is a key driver of productivity and economic growth. It helps a country to diversify its product basket. Participation in global value chains makes a country more vulnerable to economic shocks, especially the ones that affect supply chains. GVCs can also increase exposure to sudden cut-offs in the supply or demand of inputs or outputs, as well as vulnerability to disruptions in international transport networks. The report observes that apart from the above factors trade can be important factor in bringing out an economy of the crisis especially for developing and least developed countries. For instance, in India rising merchandise trade has been spearheading the country’s economic recovery from the pandemic crisis. The report mentions that policies that focus on re-shoring production, promoting self-sufficiency may lead to reduced economic resilience. Many countries opt for more protectionist stance during such crisis by imposing export restriction and import substitution. However, the report cautions that such actions can lead to retaliatory measures and escalating conflicts with trade partners. Therefore, the report suggests that countries should promote more trade diversification, both in product and markets, and even supplier bases to build more resilience during crisis periods. This diversification should be adequately supported by policies which promote technology upgradation, capacity building, and skill development. Finally the report argues that in order to strengthen economic resilience countries must opt for more global trade cooperation. This should be backed by well-defined and transparent trade rules. The two combined together may lead to more open and inclusive markets that promote diversification of products and partners (both demand and supply) and provide greater trade resilience to the countries during the crisis. The report continues to stress on greater trade and economic cooperation between the WTO member countries. The report holds extreme significance during times when WTO member countries, especially the developed ones are implementing more challenging and protectionist policies which are compounding the impact of the pandemic. I urge our members to also look into the same for more knowledge and clarity on economic recovery in the post pandemic world. Mahesh Desai

Mahesh Desai