Chief Economists Series: The Global Trading System in a Time of Geopolitical Disruption by Robert Koopman
Robert Koopman is the former Chief Economist of the WTO. Jan Svejnar, Director of the CGEG, introduced and led the lecture.
The Chief Economist Series is held every spring semester, bringing together world-renowned economists from the private and public sectors to discuss current global economic challenges and their perspectives of the future. As the Chief Economist of the WTO from 2014 to 2022 and now Hurst Senior Professorial Lecturer at American University, Koopman has participated in the series for many years. With the current state of geopolitical disruption and concerns about deglobalization, Koopman focused on the trends in global trading currently and his outlook on what will happen in global markets in the near future.
Because of COVID and the continuous tensions among global powers, global trade has slowed slightly in the past few years. According to the updated WTO trade forecast for 2023, researchers predicted a downward trend of trade and economic prospects of approximately of 1% in 2023 from 3.5% in 2022. With slowing global trade, many people are concerned about how this will affect the U.S., but Koopman has a different perspective. He analyzes various policies delivered by world-leading powers, including the U.S., the E.U., and China, and concludes that, while they face different problems in their supply chains and economies, they have successfully enacted fiscal and monetary stimulus plans to foster economic growth in recent years. However, the future looks potentially much gloomier as tensions between trading partners continue to rise, which could lead to partitioning of the global trading system into three spheres, slowing overall growth compared to potential and reorganizing global supply chains within those spheres.
Outside the macroeconomic development of the superpowers, Koopman raises the idea of how security, climate change, and health challenges can disrupt global trade while at the same time requiring more multilateral international cooperation. He gives examples of how the U.S. continues its reliance on export controls and calls on its European and Asian allies to take action. As a result, there has been more trade diversion in recent years. Superpowers like China and the U.S. are turning inward and encouraging more domestic economic and technological development instead of seeking global collaboration.
However, Koopman doesn’t look at these behaviors as deglobalization and considers it instead a reorganization of globalization. He suggests that there is little evidence of reshoring in global trade and gives the examples of India and Latin America increasing the pace of their economic interest in attracting supply chain locations as countries diversify away from China. With trade movements around the world, Koopman thinks that multilateral organizations need to ensure the collaboration of trade to sustain the changing international trade flows and help to solve global commons challenges such as climate change and global health crises.
Koopman focuses the discussion of multilateral organizations on the WTO. The world is on the path to fragmentation and reducing global collaboration, and if the rivalry trend continues, there will be constraints in economic development. To elaborate on this, Koopman shows two scenarios – one of increased integration without geopolitical rivalry and the other with reduced integration with geopolitical rivalry. According to his analysis, geopolitical rivalry could lead to a 21% decrease in exports between western and eastern blocks by 2050 and a potential decrease of 8.6% global GDP. This scenario emphasizes the need for global collaboration and indicates that both sides will benefit from the improvement of their relationship.
While collaboration presents good opportunities and growth for countries, there are also challenges ahead in promoting multilateral cooperation. Shortages and dependencies have also become more visible during crises, which trigger discussions of friend-shoring, reshoring, fragmentation, and decoupling. In addition, a switch of focus to national security also causes countries to distrust each other, reducing incentives for cooperation. Reduced cooperation around trade will lead to a rebalancing of global trade among the spheres over time.
Koopman concludes his lecture with the note that we are entering into a period of global trade disruption that has not been seen for many decades. Global trade has slowed down but not declined. Services trade growth has remained strong, and global supply chains are realigning as firms look to minimize increased political and natural risks. There’s a need for global cooperation as the patterns of trade diversify, and countries need to look at both macro and micro policy applications during this reorganization period.
Following the presentation, Koopman answered questions from Professor Svejnar and the students about how the trade patterns would change in the next few years amid tensions between China and the U.S. and Russia’s invasion of Ukraine. He also engaged with students on topics ranging from the U.S.' role in the WTO and which country might be stepping up in the global trade markets.
Written by Beverly (Yunan) Yang