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#5 - Trade helps to avoid conflict

It’s often argued that when countries trade with each other, they are less likely to engage in conflict. A trade agreement denotes mutual interest and good will, and war, be it economic or militaristic, doesn’t fit into the equation. By signing on to the principles enshrined in the Generalised Agreement on Tariffs and Trade (GATT), all 164 members of the World Trade Organisation (WTO) are obliged to commit to a system based on non-discrimination, avoiding measures that may disrupt a free and fair market. If pressure to protect domestic interests is too high and a member raises a trade barrier, other members can choose to utilise the WTO’s rules-based dispute settlement system to have the barrier removed. Peer pressure is a driving force.

The WTO helped us avoid another Great Depression during the financial crisis of 2008.

To say that trade is responsible for peace in the world would be oversimplified. However, it’s fair to say that the absence of trade creates a disjointed global economy and less common ground between countries concerned with preserving national interests. A brief look back into history at the start of the Great Depression reminds us how decisions made by certain countries to devalue their currencies and drastically raise tariffs were a shock to the global market, writes the newspaper Foreign Affairs. Global trade dropped by two-thirds, pummelling employment rates and industries. Eventually, the situation deteriorated to the point of heightened nationalistic tensions which led to the brink of World War II.

During the Great Depression, countries did not trust each other to keep their markets open. After the war, under the GATT, trade surged and confidence in the global economy rose as a result. Since then, the global economy has been much more stable, even in times of economic crisis. Had there been a similar level of devastation during the 2008 financial crisis, global trade would have fallen drastically from €13,697 billion to €4,657 billion. We also see it as no coincidence that another world war hasn’t broken out since the foundations of the WTO were established in 1948.

This is the fifth of ten messages on international trade, which we will publish over the coming weeks. If you like this please give us a star below. If you wish to respond, please send us a message via our contact form.

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