The case for reglobalization, according to the WTO: In the face of challenges such as environmental strains, increased inequality, and geopolitical tensions, counter-pressures to reverse globalization, unwind interdependence and return to a more divided world of regional blocs are rising, a recent World Trade Organization (WTO) World Trade Report 2023 (pdf) explains. The case for globalization has weakened as supply chain issues, marginalization and environmental challenges took precedence over the past few years, the WTO argues, while warning that reversing globalization could have dangerous repercussions. Reglobalization — or what the WTO describes as a more “inclusive” and broader integration of global economies — could be the solution, the WTO argues.

Why are countries shifting away from globalization? Globalization has left economies vulnerable to excessive risks, such as unreliable foreign suppliers, especially amid crises like the Russia-Ukraine war and covid-19, the report writes. Complex supply chains can leave countries less self-sufficient and prone to turbulent and external shocks, as recent crises have shown. This narrative is thus setting the stage for the increased localization of supply chains, with reshoring, nearshoring, friendshoring, and decoupling of supply chains emerging. The biggest example of that trend is China and the US, who are already showing signs of decoupling and tense trade relations.

Globalization is high risk, high reward: While the report admits globalization has helped lift mns out of poverty and created more integration and interdependence of global economies, global crises — like financial crisis, covid-19 and the Russia-Ukraine war over the past few years — can turn these rewards to challenges very quickly, it argues.

But it’s also credited for the growth of the global economy + the integration of developing countries in the global economy: The world’s economy grew 14x over the past 70 years, while world trade expanded 45x, on the back of the rise of globalization, the report says. Developing economies’ share in global trade has also grown from a third to almost half since the 1980s, with their share of global output rising from 24% to 43%.

Which means the risks of deglobalization could be even more dire than those of globalization: Deglobalization would hamper innovation, competition, and efficiency, by forcing countries to excel at more industries rather than specializing in specific industries that they excel at, the report argues. The WTO estimates that the cost of fragmenting the world into trade blocs would be 5% of real income at the global level, while developing economies could face double-digit losses.

Fragmentation is not going to solve our problems: The unwinding of globalization can lead to disruptions in the labor market, where workers may have to adapt to new jobs or find new jobs, eventually leading to reduced incomes and increased poverty, the report writes. Fragmentation can also lead to uncoordinated environmental policies, which could impede our global transition to sustainability, it adds.

The answer? According to WTO, more globalization: Integrating more people and economies into the global trade system and strengthening multilateral cooperation will make our economies more secure, inclusive and sustainable, the report argues.

While security concerns are here to stay, reglobalization can promote security by expanding the multilateral trading system to new actors and areas that facilitate “flexicurity,” which the report defines as supply chain diversification during crises. Cooperation on trade restrictions during crises can also mitigate their impact. Instead of turning to unilateral policies. The WTO can also leverage its position to reduce overlap between security and trade, by developing agreements and enabling least-developed members to overcome their trade barriers, the report writes.

It also poses benefits on the environmental front…: Reglobalization can pave the way for a green transition by advancing services trade and enabling a wider application of digital technologies, the report says. With the widespread digital provision of some services, a large share of trade would be less carbon intensive, by allowing trade to take place without cross-border movement. Digital solutions in energy, manufacturing, agriculture and land use, buildings, services, transportation and traffic management could reduce global carbon emissions by some 15%, according to the report. Digital high-speed connectivity can also improve sustainable transport by enhancing optimized transportation by enabling real-time data collection and analysis —which can lead to reduced congestion and efficient route planning which can lower emissions, the report writes.

…especially in the Middle East: With the Middle East posing big prospects for the development of renewable energies, trade and the transfer of technology is necessary to ensure these prospects are fulfilled, the report explains.

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