Trade and economic sustainability

International trade has contributed to economic growth and reduced poverty worldwide. At the same time, restructuring of economies and markets has meant the benefits of trade are not always equally shared amongst different groups, firms and regions. This article discusses how trade policies can contribute to more inclusive economic growth, for example through the design of trade agreements, Aid for Trade, and preferential market access for developing countries.

Research shows that no country has managed to achieve long-term economic growth without opening up to international trade. Nevertheless, the accepted wisdom on trade, economic growth and prosperity has undergone several shifts over recent decades. The emphasis on trade as a driver of growth with trickle down effects was updated to focus on pro-poor growth in the UN Millenium Development Goals . This was partly in response to evidence that some regions experienced economic growth alongside persistent poverty.

Agenda 2030 now promotes inclusive economic growth, a process including all groups and societies in high-, middle- and lower-income countries.
Inclusive economic growth is about the fair distribution of the benefits from growth to improve lives, reduce inequality and increase economic participation amongst all groups in society. Indeed, research has shown that economic growth is slower and less resilient when it is not inclusive. Inclusive growth is also central to building trust in society and ensuing support for trade liberalisation by ensuring the benefits do not just fall to a minority.

Trade policy for economic sustainability

Opening up markets to international trade results in the restructuring of the economy with impacts on jobs, businesses and industries. This can lead to a change in income distribution, which can reduce, create, or reinforce economic disparities within groups, firms, countries and regions. Effects are context- and country-specific, but examples include disparities between urban and rural areas, small and large firms, skilled and un-skilled labour, men and women, advantaged and disadvantaged groups, and between countries with varying capacities to take advantage of market access opportunities. For the gains from trade to benefit as many people as possible, complementary policies such as redistribution systems and stable institutions for taxation are required.

Several trade policy approaches can contribute to economic sustainability:

  • Free trade agreements can be a useful tool for supporting sustainability goals and could assist in reducing inequalities. For example, agreements can include labour provisions or commitments on gender equality.
  • Smaller firms can be supported with information on market access for example on preferential tariff rates, regulatory compliance, and standards. Export promotion programs could also support smaller firms or those led by groups with fewer economic opportunities.
  • Aid for Trade can help developing countries build capacity to engage in global value chains. An example is developing trade-related infrastructure. Development assistance can also improve quality infrastructure and help meet regulatory requirements.
  • The EU’s Generalized System of Preferences (GSP) allows for preferential market access (e.g. tariff free trade) for developing countries and encourages economic development.

Different dimensions of sustainability are interlinked

Trade and its effects cannot be seen as a purely economic issue. The economic development of a country or region often affects the other dimensions of sustainability. For example, the social dimension is influenced by changing employment rates and wages due to restructuring of the economy. Furthermore, the effect of trade on the economic resources available in a country affect the ability to adopt more climate-friendly production methods. As with other areas of sustainability, complementary measures are required for trade and trade policy to contribute to economically sustainable development.