Trade barriers – a stepping stone or a stumbling block for the globalized world?

Is the emergence of restrictive economic policies, which are often blamed for Brexit, US tariffs and nationalist sentiment among European countries, a sign of the end of the era of globalization or a warning signal? This has been a question of debate between economists for some time.

A big winner of free trade are multinational companies, who tend to invest in countries with low taxes and a low minimum wage. They benefit from the globalized value chains with their lower costs that result in higher profits. But now, this paradigm has shifted and increased environmental and social concerns pose a new challenge.

To understand the situation above, we must first understand the concept of trade barriers and how this restrictive approach can put countries into a winning or losing position. Trade barriers can take on many forms, whether it be tariffs or non-tariff methods. Traditionally, countries impose trade barriers as a means of decoupling the domestic economy from the fragility of the global supply chain. However, the impact of trade barriers is also uneven and remains challenging in a world with uncertain disruptions and unforeseen risks. For example, experiencing more advantages than disadvantages, wealthier countries are more in favour of trade barriers because they prevent them from bearing the full burden of the global economic system.

Since the 1990s, the tight interconnectedness between economic drawbacks, social anxiety and environmental concerns have provoked policymakers in some of the world’s largest economies to leave globalizing efforts behind and embrace inward-looking or protectionist policies.

Regardless of the aforementioned policies, international trade has not seen a significant fall and has actually continued to grow. Unexpected risks, such as COVID-19, are proof that all economies are tied and that integration among markets creates more resilience. In these times of crises, key international suppliers were facing lockdowns leading to delivery delays, while people’s demand for medicines and other durable goods was skyrocketing. As a result, those who diversified their imports and exports were reported to be more efficient in mitigating risks and handling shocks.

Russia's invasion of Ukraine is another example of how large and small economies are all affected by geopolitical pressures and are forced to share responsibility. When Russia cut gas supplies to Europe, it didn't just increase energy prices in Europe, the impact was felt across the world. This set the scene for future international collaborations or globalization in a hopeful direction as it was realized that protectionism does not protect national interests, but rather prevents growth.

As countries are now finding their way back into the global market, it presents an opportunity to rejuvenate global trade for the better and to create a major paradigm shift. As we come close to the 2030 Agenda for Sustainable Development, it becomes increasingly paramount that sustainability becomes the responsibility of everyone.

Addressing the nexus between sustainability and international trade could be key to driving sustainable development and growth going forward. In an era where decarbonization and wellbeing are pressing issues, organizations that are able to create a positive impact on the environment and society should be recognized and supported, rather than being faced with the same obstacles as others as a result of conventional restrictive trade measures.

Currently holding 80% market share, China is the global leader in producing solar cells and is able to produce these at a significantly lower cost compared to the West. It is evident that increasing protectionist tariffs have slowed down the installation of solar cells, consequently halting the global effort to mitigate climate change. As a result, this will do more harm than good as accumulated delays in climate change efforts will eventually lead to greater mitigation costs later down the line. When protectionism is prioritised over the greater good for the planet, this example illustrates the clear detrimental effects that will arise.

Integrating the Triple Bottom Line into trade conditions will not only create a fairer advantage for those driving with purpose, but it will incentivize others to follow a similar route, as market ignorance will leave them without a social license to operate. This also presents an opportunity for the public sector in each country to step up and make the first bold move. As they already possess the power to make policy changes, rather than being a follower in the game, they could become the spearhead in driving collective positive change from other countries. This will create greater attraction for purpose-driven companies and, consequently, increase the likelihood of elevating positive impact in their respective countries. When the Triple Bottom Line becomes a shared value between the private and public sectors, businesses will also benefit from the lowered costs of entry. This 'collaborativeness' — the ability to move beyond self-success, to collaborate between parties — is what will create the new competitiveness of the future. To achieve a higher purpose, one can no longer focus on self-competitiveness to win, but rather a collaboration to grow with a new 'stakeholder contract' in the rebuilt desired ecosystem.

Rather than reviving trade protectionism, which we know is not the solution, fostering a new era of trade that incorporates the Triple Bottom Line presents new growth opportunities for all stakeholders. Businesses will benefit from lowered costs, be more incentivised to incorporate the Triple Bottom Line into their cores and become more resilient. Governments can encourage healthy market competition and enhance the overall positive impact on society. Customers will enjoy more options in the market and have access to products and services that align with their values.

Ultimately, trade barriers should not be used as a means to pick and choose conditions that each country is willing to deal with, but rather be used as a tool to drive change that will enhance the entire ecosystem. It is not too late to stop what may seem like the decline of globalization, but the opportunity is there to create a new era of globalization, one where growth is rewired.