Geo-economic developments are illustrating the power of global partnerships but also the constraints of current systems. As Japan begins its presidency of the G20 for the first time this year, there is an opportunity for the international community to reaffirm its commitment to a cooperative approach toward economic growth and to update our trade system so that it is more resilient and responsive to new technology.
For Japan, 2018 marked a productive period in terms of strengthening global commerce: the European Union and Japan signed the Economic Partnership Agreement this past summer and the eleven-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership entered into force at the end of last year. Combined, these deals are expected to add a total of 750,000 new jobs and ¥13 trillion annually to the Japanese economy.
Indeed, these projections are in line with the broad benefits we have seen from globalization over the past quarter century. Since 1990, global GDP has doubled in real terms and the proportion of the population living in extreme poverty has dropped from 36 percent to 10 percent, according to the World Bank. A key driver behind this has been trade.
But in October 2018, the International Monetary Fund cut its global economic forecast for 2018-2019—the first downgrade since July 2016—citing strained trade ties, among other factors. Then, in January, the IMF further downgraded its projections, once again pointing to trade tensions as a reason. What this confirms is that there are fragilities in our system, and that trade wars taking place among large economies are more of a problem than an answer.
Achieving strong, sustained growth—both at the national and global levels—can only happen through cooperative, win-win policies. Protectionist measures, while responding to discontent with the current state of the global economic system, ultimately harm not only the broader economy, but the very citizens they purport to benefit. Because modern supply chains span borders, punitive duties that are meant to help domestic companies often end up only increasing the cost of doing business.
Yet, the overall importance of trade does not mean we should follow business as usual. While globalization has brought poverty eradication at a historic level, we have seen inequality within many countries increase. What is needed is to rethink globalization so that there is more equity and more solidarity. A more inclusive system will be more sustainable and resilient, fuelling continued growth that can prepare us to weather the next economic downturn.
At the same time, our global system also has to account for the fact that the global economy is rapidly changing as a result of digitization. Some projections expect digital connectivity to deliver a net increase of $19 trillion in global economic value by 2025—given this trend, we need measures that accelerate societal benefits and minimize risks from digital trade and data flows.
Both Japan and the World Economic Forum are working to help unlock the possibilities of a global innovation economy. It is why Japan will be holding a Ministerial Meeting on Trade and Digital Economy in the days leading up to the G20 summit in the spring. It is also why the World Economic Forum launched a joint initiative with the World Trade Organization and the Electronic World Trade Platform designed to drive public-private dialogue on e-commerce, and why the Forum is leading a Digital Trade Project to support the development of data protocols.
This year will be a chance for the Forum, Japan and the whole international community to continue to work toward strengthening our global system so that it can better adapt to new forces of innovation and so that it is more inclusive. A key ingredient for success will be for leaders to undertake meaningful cooperative action—action that opens opportunity for stakeholders across societies. In this way, we will see a global economy that grows stronger and more resilient as the fruits of cooperation are widely shared.
A version of this article originally in Japanese in “Japan's Economic Diplomacy 2019”, a publication of the Economic Bureau of Japan’s Ministry of Foreign Affairs.