The global trade landscape is at a crossroads. As protectionism accelerates worldwide, the multilateral trade system faces unprecedented challenges. Yet, amidst this turmoil, there shines a beacon of hope: reciprocal free trade as a win-win path to an open world economy.
At the Summer Davos 2024 in Dalian, Premier Li Qiang emphasized China's commitment to building an open world economy and rejecting bloc confrontation and decoupling. This stance underscores the critical role that free trade plays in fostering economic prosperity.
Historically, the world witnessed severe restrictions on free trade before the 1990s, overshadowed by global confrontations. The end of the Cold War in 1991 marked the beginning of a new era in global trade. With the establishment of the World Trade Organization (WTO) in 1995, succeeding the General Agreement on Tariffs and Trade (GATT), free trade became a universal principle guiding international economic exchanges.
China's accession to the WTO in 2001 was a significant milestone, integrating a major country with immense market potential into the global open economy system. This not only boosted global market openness but also contributed tremendously to the global economy. China's share of global economic growth has surged from less than 10 percent to over 30 percent, positioning it as a primary driver of global growth today.
However, rising isolationism and trade protectionism threaten to reverse these gains. Decoupling and disruptions in supply chains could severely damage the interconnected global economy. In today's globalized production network, countries depend on each other's resources and capabilities. By embracing free trade and leveraging each country's comparative advantages, resources can be allocated efficiently, reducing production costs and maximizing welfare.
Conversely, market isolation and protectionism may offer temporary shields to domestic industries but ultimately hinder innovation and cause stagnation. These measures lead to increased production costs, which consumers eventually bear, disproportionately affecting lower-income groups. For instance, following the escalation of China-U.S. trade frictions, Moody's estimated that 92 percent of the costs of tariff hikes would fall upon U.S. consumers, increasing the average household expenditure by $1,300 annually.
If decoupling and supply chain disruptions continue to spread, global trade exchanges could diminish significantly. Countries might regress to an era of isolation, severely hampering global economic growth. Therefore, fostering reciprocal free trade is essential for a prosperous and open world economy, benefiting nations and people across the globe.
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Reciprocal free trade a win-win path to an open world economy
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