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Trade imbalances and multilateral trade cooperation

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  • Marchetti, Juan
  • Ruta, Michele
  • Teh, Robert

Abstract

Rising current account and merchandise trade imbalances marked the years before the global financial and economic crisis. These imbalances either contributed to or precipitated the crisis and to the extent that they create systemic risks, it is desirable that they be reduced. There are many factors related to macroeconomic, structural, exchange rate and financial policies that contributed to the imbalances. The inability to manage these issues at the international level reflects the coherence gap in global governance. This paper examines the contribution that the WTO can make in its three areas of activities - negotiations, rule-making and dispute settlement - to deal with trade imbalances and with the main factors leading to them, including exchange rate misalignments. First, market opening efforts in services, including in the area of financial services, can reduce policy-related distortions and market imperfections in surplus countries that lead to the build-up of unsustainable imbalances. Second, in the context of a broad international effort to coordinate macroeconomic, exchange rate and structural policies to deal with the roots of imbalances (the first-best solution), there is a general efficiency argument that could be made for the use of WTO-triggered trade actions to enforce cooperative behaviour towards rebalancing. Absent this first-best response, trade rules alone would not provide an efficient instrument to compensate for the weaknesses in international co-operation in macroeconomic, exchange rate and structural policies.

Suggested Citation

  • Marchetti, Juan & Ruta, Michele & Teh, Robert, 2012. "Trade imbalances and multilateral trade cooperation," WTO Staff Working Papers ERSD-2012-23, World Trade Organization (WTO), Economic Research and Statistics Division.
  • Handle: RePEc:zbw:wtowps:ersd201223
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    2. Mei, Yuan, 2020. "Sustainable cooperation in international trade: A quantitative analysis," Journal of International Economics, Elsevier, vol. 123(C).
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    More about this item

    Keywords

    Trade imbalance; current account; exchange rates; international policy coordination; WTO; international sanctions;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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