Doubling down on sustainable trade

In many ways, 2022 was a pivotal year for global trade, and not in a good way. Nowhere was this more evident than the outbreak of the Ukraine war in February.

 Beyond the intolerable human cost and devastation on the ground, the conflict brought surging into public consciousness how easily and quickly the trading ties between nations, once the measure and symbol of their comity, can be undone and weaponized.

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, on how international trade very often does not conform to the economic theorem that countries will export products from factors 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.

A darker use of trade

The use of secondary sanctions in the Ukraine war is reflective of another major trend in global trade. All major powers are weighing the expansion of such trade weapons in dangerous new ways. As the West mulled secondary sanctions on Russia, China in August dropped on Lithuania the most comprehensive set of sanctions it has ever leveled – including secondary sanctions – as retribution for the Baltic nation’s diplomatic gravitation toward the West and Taiwan, which Beijing regards as a renegade province. 

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. President Biden appears keener on trying untested models of international cooperation, rather than returning to multilateralism. By refusing to support judge appointments to the World Trade Organization, the US continues to ensure that the body’s top court remains unable to adjudicate the world’s biggest trade disputes. The Appellate Body – for all the successes of the WTO’s 12th Ministerial Conference – remains toothless. Until the world trading order again finds a way back to mutually agreed rules, the golden age of globalization spanning the last 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 is launching its fourth iteration of the Sustainable Trade Index. 

Bleak as the landscape looks, there may be no better time to reboot the index, our flagship research product. The STI’s most obvious feature is a ranking of economies – expanded this year to number 30, covering major economies across Asia and the Americas, including current and potential members in the Asia-Pacific Economic Cooperation grouping – measured by 70 indicators across economic, social, and environmental factors.

The 70 indicators are insights into how economies function. They help us to understand, for instance, how a nation’s capital account peculiarities might put its financial system at risk. Or which economies are signatories to key global environmental accords – and which are not. They help us learn about economies that rely more on forced labor than their peers do. Or where gender discrimination is more of an issue. Or where carbon pricing is taking off. 

And we constantly refine the indicators with each iteration of the Index, which from this year will be annually published. This year, we added consumer price inflation and healthcare as additional indicators in the calculation of the sustainability of an economy’s trade.

The inclusion of each indicator is a collection of deliberate decisions. When we wanted to measure the effectiveness of an economy’s healthcare system as a factor of sustainable global trade, we debated with our consultants, Switzerland’s International Institute for Management Development, which indicator to use. We eschewed total healthcare spending due to the failure of such spending sometimes to translate to a strong public health system. Neither did public healthcare spending meet our cut, as we felt there were too many variations of what that term means to make for equitable international comparisons. We ultimately picked life expectancy as an overall measure – a literal summation of life-and-death choices – of an economy’s healthcare system.

When we chose to include an assessment of the “ecological footprint” in economies, to buttress carbon emissions per capita as a measure of environmental stewardship, we wanted an indicator that quantifies how much natural resources it takes to support an economy. It tells us how fast we consume resources and produce waste, essentially adding a fresh dimension to measuring the human impact on the environment beyond carbon output.

And we will introduce this year an indicator that measures how much modern slavery might be used to produce your imports and exports. The findings are a sobering indication of how the appetite of developed economies is driving forced labor, often more than we imagine. We hope such findings rally our wider policy, business, and academic communities, to discuss solutions. We need to know more about our supply chains.

Global trade in crisis

We publish the STI’s methodology alongside our research, free of charge. The indicators amount ultimately to a set of principles about the way we should live, distilled by the United Nations in 2015 as Sustainable Development Goals, a benchmark for global growth, climate change, and the reduction of inequality. 

During the pandemic, we saw countries that allowed overdependence in their supply chains become vulnerable to great economic losses. We saw how the pandemic’s social and economic toll varied across countries depending on the capacity of governments to mobilize coherent and intelligent policies. 

We believe our Sustainable Trade Index shows a way forward. We will publish this year’s index in November. Watch this space.

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