For decades, international trade has served as a powerful engine for job creation and economic advancement. Take South Korea as a prime example. In the 1960s, it was a modest, agriculture-based economy. Today, it has transformed through export-led growth into a prosperous, industrialized nation known globally for its cutting-edge brands in cars, electronics, and other consumer goods.

However, recent debates among economists have brought new perspectives on trade. Some argue that the advantages of globalization have primarily benefited a few major corporations, leaving smaller firms and workers in developing countries behind. Additionally, disparities in labor and environmental standards worldwide have led some to worry about a “race to the bottom” as countries compete to attract foreign investment with lower wages and minimal regulations.

Meanwhile, events like the COVID-19 pandemic and geopolitical tensions, such as the conflict in Ukraine, have sparked increased interest in protectionism and economic self-sufficiency, challenging the momentum of globalization.

A World Bank report, Leveraging Trade for More and Better Jobs, sheds light on these concerns by analyzing job-related outcomes across developed and developing countries. Based on extensive data from 1995 to present, the report highlights that global trade and value-chain integration have yielded significant positive effects, including:

  • Job creation, especially boosting employment opportunities for women;
  • Higher wages and productivity in many regions;
  • Reduced income inequality in various low- and middle-income economies;
  • Improved job quality, with a shift from informal employment, such as street vending, to jobs with benefits like job security and retirement plans.

However, the report also identifies certain challenges that must be addressed to sustain these benefits and prevent adverse economic and social policies.

For instance, low-income countries tend to see more modest benefits from trade in terms of job creation and inequality reduction compared to middle-income nations like Mexico and Thailand. Additionally, since the 2007 global financial crisis, the positive impacts of trade on job creation and economic improvement have somewhat weakened, leading experts to suggest that trade alone may not be enough to drive substantial growth. For sustainable development, many countries may need to adopt broader economic policies.

Supporting Trade with Policy: Mitigating Disruptions

To fully harness the benefits of trade, supportive policies can help ease potential disruptions that affect certain industries, areas, or workers. For example:

  • Upskilling workers as industries and technologies evolve can help reduce job displacement.
  • Supporting regions with low labor mobility through local economic initiatives can promote a more balanced distribution of trade’s benefits.
  • Improving the business environment, like reducing corruption and cutting red tape, can encourage companies to invest and create jobs, maximizing the opportunities that trade offers.

One question remains: why has trade’s effectiveness in creating quality jobs diminished post-2007? A significant reason could be the rise of automation and technology, which makes manufacturing less labor-intensive and, therefore, less likely to absorb large numbers of low-wage workers in developing countries.

Preserving a Stable, Rules-Based Trade System

Today, the global trade system is under pressure. With rising geopolitical tensions and concerns over access to crucial resources, such as semiconductors, countries are increasingly turning to trade barriers and subsidies for domestic industries. This trend undermines the global rules-based trade system and its dispute-resolution mechanisms, potentially weakening international trade.

Developing nations are likely to face the hardest impact from these shifts. They rely heavily on trade for economic growth, job creation, and productivity gains. Moreover, a rules-based system offers the stability and predictability that attract foreign investment, which is critical for growth in these regions.

To fight global poverty and create well-paid, secure jobs, it’s essential to protect and strengthen the global trading system. A stable, fair, and rules-based trade environment will support the economic ambitions of developing countries and foster sustainable prosperity worldwide.