World Economy

Rich Countries Should Help Those Hurt by Free Trade

IMF has identified two key concerns: one is persistent low productivity and, second, excessive inequalities that grow together with that low productivity
Rich Countries Should Help Those Hurt by Free TradeRich Countries Should Help Those Hurt by Free Trade

The world isn't doing enough to help workers and communities displaced by global free trade, says a new report. It calls on countries to put in place necessary measures to help those who lose out in global competition.

The world's richer countries should help workers affected by trade liberalization, which has grown increasingly unpopular in the post-financial crisis era, driving a rise in protectionism, according to a report published Monday, DW reported.

The report, jointly produced by the International Monetary Fund, World Bank and World Trade Organization, called for greater job training, stronger social safety nets and other policies that could ease the shocks from shifting industries and greater competition, particularly in the United States and Europe.

The report was released in advance of this month's IMF-World Bank spring meetings.

Trade Generates Benefits

The three multinational groups insist that greater progress toward freer trade is "important to reinvigorating global growth," repeating their longstanding view that free trade spreads broad economic benefits.

Open markets and increased competition can help poor countries rise from poverty, lower prices in rich countries and force companies and countries to become more efficient and focus on what they do best.

On Monday, the heads of major international economic bodies, including the IMF, World Bank and WTO, met German Chancellor Angela Merkel in Berlin to discuss issues related to world trade. After their meeting, Merkel said she hoped for continuity when it came to policies in areas such as trade and climate change, despite growing protectionist tendencies worldwide.  

Roberto Azevedo, the head of the WTO, said after the meeting with Merkel that it was important to note the positive impacts of trade.

"But also we must recognize the concerns of people about trade and the impact that it can have in their lives," he told reporters. "We need to ensure the benefits of trade are shared more widely. We should also recognize at the same time that 80% of the jobs that are lost today in the advanced economies are not due to imports. They are lost because of new technologies, innovation and higher productivity."

Many Left Behind

The global institutions, however, admit that those who lose out in global competition can be hit harder and suffer longer than previously understood. The organizations want countries to make it easier for people to switch careers or move where jobs are and in some cases to provide insurance for lost wages.

"To be sure, job losses in certain sectors or regions in advanced economies have resulted to a large extent from technological changes rather than from trade," the report said.

"But adjustment to trade can bring a human and economic downside that is frequently concentrated, sometimes harsh, and has too often become prolonged."

IMF More Optimistic

The IMF sees a more favorable outlook for the global economy this year and next than in 2016, but it has concerns beyond the near-term, IMF Managing Director Christine Lagarde said.

"Our forecast for 2017 and 2018 is certainly more favorable than what we have seen in 2016, and probably a bit more so than we had forecast previously," she said before the IMF releases its world economic outlook later this month, CNBC reported.

"So there is a positive short-term outlook on the horizon, which is unfortunately tainted by the risks that are still there, and that lead us to be concerned about the risk of complacency," Lagarde added.

"I have also identified two key concerns that we at the IMF have: one is persistent low productivity and, second, excessive inequalities that grow together with that low productivity," she said.

Meanwhile, emerging economies are set to slow this year as the US Federal Reserve begins raising interest rates and there's a rising protectionist rhetoric in advanced economies, Lagarde warned.

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