Trade and Investment

Trade can help us create a better society for all - if we use it properly

A port worker watches as a ship leaves the New Priok Container Terminal 1 in North Jakarta, Indonesia September 13, 2016.

Can trade help us to end poverty, empower women and create equitable economic growth? Image: REUTERS/Darren Whiteside

Arancha González Laya
Executive Director, International Trade Centre
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Long-Term Investing, Infrastructure and Development

Trade gives people a tangible interest in each other’s economic wellbeing and offers a path to fiscally responsible growth, says Arancha González, Executive Director of the International Trade Centre and co-chair of the Global Future Council on International Trade and Investment. In this interview, González also discusses the impact of the Fourth Industrial Revolution and how, by 2030, trade and investment could help us to empower women and end poverty.

Why is trade and investment among the most important topics for the world’s future?

I would identify four reasons. First, in a climate where governments are limited in what they can spend, trade and investment offer a path to fiscally responsible growth.

Second, trade and investment enable companies to specialise and scale, which brings prices down – especially for the poor, more of whose income goes on goods that are commonly traded. One recent study, for example, found that the gains from trade in terms of cheaper goods and enhanced purchasing power are more than twice as significant for the poorest decile than the wealthiest.

Third, trade and investment are good for innovation – open economies allow new ideas and technologies to diffuse more quickly from wherever they are created.

Finally, trade and investment give people a tangible interest in each other’s economic wellbeing. Look at a map of the world: the countries which do not trade much, or which trade only in oil and gas, tend to be in regions which suffer the most social and political instability. That’s not an accident. If I trade with you, I understand that what happens to you also affects me.

What are the key trends in trade and investment?

There are two, both driven by the Fourth Industrial Revolution, but pulling in opposite directions. The digitalization of economies is hugely empowering for people at the bottom of the pyramid – the 4IR is bringing small, distant and poorly-connected societies into the global economy, and enabling SMEs to become “micro-multinationals”.

For all the talk that volumes of trade are slowing down, cross-border in digital goods and services is actually growing hugely. We just haven’t figured out how to measure it properly yet. Statisticians are struggling to keep pace with services that were never previously tradeable suddenly becoming tradeable, like being able to consult a doctor in another country online.

However, the 4IR is also creating huge disruptions and dislocations. Change is happening so rapidly that societies struggle to respond and adjust. There’s an old phrase that I think captures the sense of dizziness a lot of people are feeling: “Stop the world, I want to get off”.

Are you worried about growing protectionist pressures?

I think that when voters react negatively to trade and investment, they are really expressing their angst about the pace of technological change. You can’t vote to slow down technology, but you can vote against trade deals, and people are looking for any levers they can pull in an attempt to regain some sense of control. Governments have not yet found a way to resolve this tension between the simultaneously empowering and disempowering impacts of technology.

So I am less worried about protectionist pressures in the short term than I am about whether, in the medium- to long-term, societies will find a way to adjust to the pressures being created by the increasing speed of technological change.

Do you see any countries doing a better job than others at managing this tension?

I was recently in Canada, where I was impressed with the understanding that trade and investment policy has to be placed in the context of a broader domestic policy agenda on education, childcare, infrastructure, taxes and growing the middle class. After all, trade isn’t an end in itself – it’s a means to growth, and growth in turn is a means to creating a better society through policies that shape the distribution and the inclusiveness of that growth.

I also found in Canada an appreciation that cultural diversity can become a real economic asset, but that this doesn’t happen automatically – it needs to be worked on – and that citizens will be more supportive of open trade policies if they feel reassured that the country’s borders are secure. If leaders act as if all they care about are open markets being economically beneficial overall, and it’s tough luck to the groups who happen to lose out, that’s what causes a backlash.

Who are the key players in maintaining an open approach to trade and investment?

That’s changed a lot in the 20 years I’ve been working in trade negotiation. When I started, it was much more about governments talking to each other – but now making trade and investment policies work requires embracing the private sector, NGOs and academia in a genuinely multistakeholder approach.

Where do you think we might be by 2030?

I hope we’ll have succeeded in finding ways to measure trade in the digital goods and services that will exist by 2030 and we couldn’t now imagine. More broadly, my hope is trade and investment policies will have contributed by 2030 to ending poverty and economically empowering women – and my worry is that we will mismanage the huge changes that will take place in societies by 2030, and accidentally blunder into war and conflict.

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