trade agreement
Trade deals and alliances need a bit of rethinking. Image Credit: Pixabay

The world had become small due to the ease of transporting products and tracking them. Some products are delivered within a few days - or even hours - and making the world accessible regardless of geography. Until Covid, globalization was leading the way; but the pandemic made it difficult to cross borders.

A 2021 UNCTAD report concluded RTAs (Regional Trade Agreements) are important to trade resilience: “Overall, trade within RTAs decreased significantly less than trade under no-agreement during the pandemic by about 5.6 percentage points”. World Bank research shows such agreements increase trade in goods by more than 35 per cent and trade in services by more than 15 per cent. Covid proved how interconnected world supply chains can be disrupted — from unpredictability in demand and disruptions in supply to disruptions in logistics and transport.

Tech induced trade trends

Some goods were subject to unanticipated surges in demand. These were due to Covid, but also to shift in demand resulting from work-from-home policies (the shift from food consumed away from home to food consumed at home, which led to changes in product choices and packaging requirements). Other goods and services saw decline in demand due to confinement measures or falling incomes (e.g. travel or in-person services, purchases of durable goods).

Technologies such as AI and blockchain also impact the future of trade by improving the aggregate supply for many industries, promoting lower prices and higher output. However, tech also poses a threat to trade as some may disrupt current patterns of production and trade – shortening supply chains and creating greater autonomy between individual countries.

Spillover benefits

Tech spillovers are also common; these are the unintentional technological benefits to firms that come from the R&D efforts of other firms without the costs being shared. Spillover can from advanced economies to firms in emerging economies. RTAs, particularly ‘deep’ RTAs with investment provisions, can facilitate cross-border technology spillovers through an increase in bilateral trade and FDI.

Developing countries can benefit from free trade. A free trade agreement is an understanding between two or more nations, usually within the same region, to reduce barriers to imports and exports among them. Under a free trade policy, goods and services can be bought and sold across borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.

Theoretically, regional trade can improve the quality of life for a nation’s citizens. Nations can import goods not readily available within their borders. Importing goods may be cheaper for a developing country than attempting to produce consumer goods or services within their borders.

The benefits of regional trade are multi-fold as it generates economic growth, reduce trade barriers, ensure the quality of goods and increase the volume of trade.