Washington: Last week in Washington, the International Monetary Fund and the World Bank held their annual spring meetings. But the good news is that if we make the right choices now, we can ensure a better future in which we can continue to foster global growth, maintain an open global economy, and eradicate poverty on a global scale.
During the meetings, the U.S. Chamber of Commerce hosted twenty finance ministers and governors of central banks. They were all concerned about the state of the world economy as their nations struggled with the effects of the conflict in Ukraine, high inflation and the increases in interest rates made to combat it, and increased pressure on banking systems.
The crises, according to several ministers we heard from, have lowered growth expectations and made it impossible to repay debts taken out in anticipation of a strong economic recovery. In some markets, weak growth has fueled a drop in investment, creating a vicious circle of decline. According to the World Bank, this is "an unprecedented confluence of crises."
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Extreme poverty as a percentage of the global population decreased from 38% in 1990 to 8% in 2019, but the pandemic and the war have reversed that progress, leaving more people with insufficient resources to survive.
According to a recent Bank report, "nearly all the economic forces that powered prosperity and progress over the last three decades are fading." These changes are bringing down expectations for the world economy. The average annual potential growth of the world economy for the remaining nine years has decreased by a third from the previous ten years to just 2.2%.
Painful declines will also be seen in developing economies. According to the Bank, their potential growth will decrease from 6% per year between 2000 and 2010 to 4% per year for the remaining nine years of this decade. The World Bank warns that these trends could become significantly worse during a global financial crisis or recession.
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Such regress in the fight against poverty is simply unacceptable given the enormous progress that has been made in the world. We must comprehend what spurred these enormous advancements over the previous decades if we are to stop that from happening.
All of this development in the fight to end world poverty can be attributed in large part to trade. As more and more nations take advantage of trade opportunities, the global economy has improved. Today, one-fourth of the world's GDP comes from international trade.
Emerging markets and developing nations benefited from specialisation, exchange, and rules-based trade as they integrated into the global trading system. We can be certain that nations that engage in free and open trade grow more quickly and typically have higher levels of innovation and productivity. These nations offer their citizens more opportunities, higher wages, and more affordable goods and services. Trade has helped hundreds of millions of people escape poverty, while also bringing enormous benefits to the US and other developed nations.
Unfortunately, the strains in the world economy that we are currently experiencing have led to a negative response. Protests against free trade are being replaced by calls for economic nationalism and protectionism. Trade is no longer viewed by many as a win-win situation. Beggar-thy-neighbor laws will unavoidably take a toll as more walls are built.
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This is a significant moment. It is up to the United States to set an example. We cannot ignore the gloom and doom, but we also cannot give in to it. Taking action is the best cure.
Let's declare the global economy open for business and remind everyone that the solution to ending poverty is increased trade, not decreased trade.