Justin Yifu LIN: Developing countries, unite!
Justin Yifu LIN: Developing countries, unite!
Leading economist opposes scapegoating international trade and looks to the strength of developing countries for countering deglobalization.
Today's post is short, featuring a speech delivered at the "Confronting Fragmentation in Global Trade" sub-forum during the Boao Forum 2024 on March 26. The speaker, Professor Justin Yifu LIN, is Dean of the Institute of New Structural Economics, Dean of the Institute of South-South Cooperation and Development, and Professor and Honorary Dean of the National School of Development, Peking University.
Lin criticizes many countries for blaming international trade for their internal issues and calls on academia and the media to accurately convey the realities. He also notes that regional trade agreements serve as practical alternatives when it's not possible to establish global consensus.
According to Lin, developing countries gain more from trade compared to developed ones. Given that countries outside the G7 now make up 70% of global GDP, developing nations can and should unite and utilize their economic strength to advocate for an international trade system under WTO rules, thus opposing the increasing trends of deglobalization and trade fragmentation globally.
The Chinese transcript is available on the official WeChat blog of the National School of Development.
Lin kindly reviewed and approved the translation below.
林毅夫：如何理解和应对“贸易碎片化”
Justin Yifu LIN: How to Understand and Address "Trade Fragmentation"
As a scholar, I would like to share three perspectives regarding trade fragmentation and globalization.
The root causes of deglobalization and trade fragmentation
It is widely acknowledged that trade is mutually beneficial, allowing both sides to more fully utilize the domestic and international markets and resources, enabling more rapid and cost-efficient economic development. This is clear both in theory and in practice.
The emergence of deglobalization and trade fragmentation primarily stems from internal challenges within certain countries, such as high unemployment, sluggish economic growth, and a shrinking middle class. Instead of confronting these issues directly, these nations attribute their domestic market challenges to the impact of imported goods, using international trade as a scapegoat. However, this is not the cause.
I believe academia and media bear the responsibility for analyzing and clarifying the root causes of these challenges. Proper diagnosis is essential for effective solutions. If the proposed remedies are irrelevant or only loosely connected to the actual causes, these solutions will be ineffective, benefiting neither the country in question nor the global community. Therefore, it is vital for academia and media to clearly communicate the reasons behind domestic issues to aid in solving them.
The emergence of new regional cooperation arrangements: why?
Despite the consensus under the WTO framework on trade liberalization, the specific stance of each country varies, and sometimes countries may even obstruct actions that would benefit the majority to satisfy their own political needs. For instance, when WTO was first established, it didn't promote liberalization in the agricultural sector because political parties in developed countries needed to subsidize their domestic farmers to secure electoral support.
Currently, some developed countries, facing a decline in the international competitiveness of their manufacturing sectors, are implementing various restrictions that impede globalization. To protect their domestic businesses and manufacturing industries, some countries are hesitant to advocate for the liberalization of cross-border trade, despite the general benefits of such trade for all countries.
When global unanimous rules are unattainable, regional cooperation emerges as a suboptimal alternative, given that countries within the same region often share similar developmental stages and interests. Regional cooperation can at least benefit all participating countries. Moreover, establishing an open regional economic cooperation agreement—where each member country collaborates to advance their economies while remaining open to countries outside the region—is to be encouraged. This approach facilitates the establishment of regional cooperation in advance of new global WTO rules, which are currently unattainable.
Why developing countries should proactively unite and cooperate
While trade is usually a win-win case, smaller countries often gain more than larger countries. Most developing countries are small, whereas developed countries are primarily large. In trade, developing countries gain significant benefits, while developed countries receive less.
Conversely, if trade is reduced or even halted, large countries suffer less while small countries suffer more. Hence, in bilateral negotiations, developing countries are at a disadvantage. However, the global economic landscape is undergoing profound changes unseen in a century. Before 2000, the G7 economies accounted for half of the world's economy, with other countries making up the rest. Now, the G7's GDP only represents 30% of the global economy, while the rest of the countries account for 70%. If united, the total economic volume of developing countries will far exceed that of developed countries. Under such circumstances, if developed countries cease trading with developing countries, the losses incurred by developed countries would outweigh those of the developing countries.
Therefore, developing countries are the biggest beneficiaries of globalization. Developing countries should unite and continue to push for an international trade system governed by WTO rules. Despite the challenges, achieving this goal remains feasible.
 | A guest post by
|