Trade and geopolitics

Win, lose or draw: Estimating the impact of disengagement on APEC trade

APEC Policy Support Unit

APEC PSU The Impact Of Trade Disengagement On APEC Min

Published 04 June 2024

Geoeconomic fragmentation is an ongoing process, not a done deal. Economies still have the space to affirm their consensus for regional cooperation and reverse this trend. Walking back from trade disengagement is especially incumbent for the APEC region, which has open multilateralism and economic integration at its core.

Over the past three decades, globalization and multilateralism have significantly benefited the APEC region. But calls for economic and trade disengagement are getting louder and louder, advocating a return to fragmented economic blocs driven by geopolitical preferences last seen in the 1980s.

What are the consequences of fragmentation? Who stands to win or lose in a regional economy characterized by exclusionary economic blocs? By analyzing data spanning three decades to estimate the impacts of trade disengagement policies on APEC trade flows and categorizing member economies into three blocs, this study authored by APEC Policy Support Unit and supported by the Hinrich Foundation finds that cross-bloc trade restrictions negatively impact APEC trade for all blocs and almost all sectors. Even member economies that stay neutral suffer losses in terms of trade, indicating potential unintended repercussions of targeted restrictive policies.

Conversely, intra-bloc facilitative policies benefit trade across all blocs, emphasizing the importance of maintaining commitments to economic integration.

Now, more than ever, the findings of this study remind us once again that trade fragmentation is a lose-lose proposition. Economies therefore need to rebuild trust in each other as trading partners; this involves avoiding actions that inject uncertainty into an already volatile market or doubling down on protectionism. Multilateral institutions, such as the APEC, could play an important role in providing an avenue where economies can discuss, debate, and achieve consensus on supporting economic cooperation rather than resorting to unilateral actions. Geoeconomic fragmentation is not inevitable – it can be reversed with concerted efforts.

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