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Trade Policies for Combating Inequality

Equal Opportunities to Firms, Workers and Countries

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In the last four decades, international trade, along with finance and technology, has been instrumental in the development process of many countries. Trade reforms undertaken in developing countries have been accompanied by more rapid economic growth, leading to a reduction in income gaps and lower levels of inequality between countries. While the process of global trade integration has contributed to broad economic gains at country levels and convergence between developed and developing countries, yet it has also been accompanied by polarization in the distribution of income, sometimes increasing within-country income inequality. The increase in within country inequality is possibly a cause behind the current reaction against globalization, international trade and the multilateral trading system.

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Concluding remarks on policy orientation

Trade reforms have contributed to reducing income inequality between countries. They have, however, also been accompanied by a polarization of the distribution of income within many countries. The latter is possibly the main cause behind the current backlash against international trade. Resorting to protectionism to reduce trade is not a solution to addressing the adverse distributional consequences of trade. Trade is a catalyst for economic growth and development as recognized in the SDGs. Accordingly, to respond to inequality, rather than focusing exclusively on productivity and economic growth, policymakers need to focus on encouraging trade and on ensuring that the benefits brought by international trade must become more inclusive and responsive to the imperatives laid out in the Sustainable Development Goals.

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