In many ways, 2022 was a pivotal year for global trade, and not in a good way. Nowhere was this more evident than the effects of Russia’s invasion of Ukraine in February.
Beyond the human cost and devastation on the ground, the conflict brought surging into public consciousness how easily and quickly trading ties between nations, once the measure and symbol of their comity, can be undone and weaponized.
Its impact gummed up some of the world’s most basic supply chains, from energy to food. As shortages loomed, governments elsewhere raced to ban exports of their own food and food-related products in turn. The conflict came just as inflation was increasing worldwide, growth was slowing, and new tariffs were rising among the world’s biggest economies.
Beyond the war’s immediate impact on commodity markets, trade has become an instrument for nations to probe each other’s strategic weaknesses. President Putin’s move to turn off Europe’s natural gas was the opening gambit in such warfare. Sanctions, both primary and secondary, extended the West’s arsenal. They reflect another dangerous new trend in global trade, with all major powers weighing the expansion of such trade weapons.
In 1995, when globalization was still in its heyday, the Canadian economist Daniel Trefler wrote in a celebrated paper, The Case of the Missing Trade, about how international trade very often does not conform to the economic theorem that countries will export products from resources that they own in relative abundance. Economists found the theorem works only about half the time. Trefler identified a consumer bias toward domestically produced goods as a key reason for this discrepancy, or what he called “the missing trade” – a proxy for the trust between trading partners. Trade and trust are expressions of each other. Increasingly, that bond is under attack.
These events are unfolding as the international will to enforce order in the multilateral trading system is in full retreat. Faith in such institutions is fading. Blocked by a US embargo on its highest court, the World Trade Organization remains unable to adjudicate the world’s biggest trade disputes. Until the world trading order again finds a way back to mutually agreed rules, the golden age of globalization spanning the past 30 years can be regarded as having been an aberration, not the norm, of the global economy.
Reinventing our flagship
It is against this backdrop that the Hinrich Foundation launched its fourth iteration of the Sustainable Trade Index, supported in 2022 by the IMD World Competitiveness Center’s (WCC’s) world-class research.
Bleak as the landscape looks, there may be no better time to reboot the index. The STI’s most obvious feature is a ranking of economies – expanded in 2022 to 30 and covering major economies across Asia and the Americas, including current and likely members in the Asia-Pacific Economic Cooperation grouping. They are measured by 70 indicators across economic, social, and environmental factors.
New Zealand topped 2022’s rankings, scoring well in most indicators across all three factors. Aside from maintaining openness to trade in its macroeconomic and monetary policies, the island nation posted top marks for political stability, labor standards, and gender diversity in hiring outcomes. And New Zealand has – comparatively speaking – the least polluted air. It also implements the most international agreements for conserving the environment.
The index reveals the increasingly fragile global macroeconomic environment. Barriers to trade are rising, especially among major economies. The US and UK’s economic rankings were dragged down by their relatively high-tariff and non-tariff barriers to trade. As a cold winter looms, especially in Europe, the rankings also illustrate the importance of environmental policies for making trade more sustainable. The UK, Japan, and Mexico earned high marks in the rankings for their management of energy intensity, which measures the amount of energy consumed for each dollar of gross domestic product.