As protectionism is gaining ground, global trade is facing a crisis. According to the Chief Economist of the World Trade Organization (WTO), Ralph Ossa, less trade does not make countries safer but weaker.

This interview by Thomas Fuster and Peter A. Fischer was originally published in NZZ on 16.1.2025. Edited for layout purposes by the UBS Center.

Summary

• WTO Chief Economist Ralph Ossa believes that less trade does not make countries safer but weaker.
  

• Ossa argues that countries need to specifically analyze global dependencies to capitalize on their strengths rather than aiming for complete independence.
  

• Despite the rising influence of protectionism, global trade in goods continues to grow, and trade can play a vital role in the solution to climate issues.
  

Mr. Ossa, you transitioned from academia at the University of Zurich to a role at the World Trade Organization (WTO). How has the shift from theory to practice been for you?

It's fascinating. I often feel like a kid in a candy store because I can now work directly on current trade policy issues. At the same time, I feel that my work has an immediate impact, which is very motivating. While I had complete freedom in my writing at the university, I now have to carefully consider every word politically. But that only gives my work more weight.

Do economic arguments carry enough weight at the WTO?

Yes, our analyses help delegates understand the context of different issues and aid them in developing strategies for the future of trade. Topics such as digitalization, sustainability and justice are key future-oriented issues that are debated on an economic basis here. In conversations with delegates and representatives from various capitals, I get the sense that our ideas are well-received.

Nevertheless, the prevailing impression is that the WTO has lost some of its significance. Is it still relevant?

The WTO aces its share of challenges, but its relevance remains undiminished. More than 75% of world trade continues to take place directly under WTO rules according to the most-favored-nation principle. While regional trade agreements and disputes – such as those between the U.S. and China – are on the rise, the WTO continues to be a cornerstone of the global trading system. Progress may have slowed, but the existing WTO rules are a historic achievement that continue to bring great benefits. This also applies to the U.S., by the way, where 85% of their exports are subject to these rules.

So everything is fine?

No. Of course, world trade and the WTO are in crisis. But neither has become irrelevant as a result. I think the narrative of an irrelevant WTO is dangerous. If everyone dismissed the system as irrelevant and acted in their own interest, we would have a serious problem.

Trade policy is increasingly dominated by security issues, which puts globalization under pressure. How bad is the current global trade situation?

The figures do not point to a process of deglobalization. Despite geopolitical tensions, global trade in goods continues to grow. We saw a growth of 2.7% in 2024, and we expect an increase of 3% in 2025. Trade is thus growing at a similar rate to gross domestic product. However, this could change – we should not be lulled into a false sense of security.

Environmental organizations are also increasingly criticizing trade.

Yes, although trade is part of the solution to the climate issue and not part of the problem. Unfortunately, however, many people think that trade leads to transportation and therefore to emissions. They thus come to the conclusion that trade is bad for the environment and that only regional consumption is eco-friendly. That's incorrect.

Why is that?

Because in addition to emissions from transportation, we also need to consider emissions from production, which vary greatly between countries. This opens up opportunities, as the same principle that drives trade – countries benefiting by specializing in areas where they are most productive – applies to ecology. In this sense, there is an ecological comparative advantage. Countries should focus on sectors where they can produce with lower emissions. This would reduce global emissions. Trade and environmental policy need to be more closely interconnected.

It remains to be seen whether this message will reach the United States. Donald Trump, a proponent of high tariffs, will begin his second presidency soon. Are we facing a new global tariff war?

This increased uncertainty is already damaging trade. Companies are reluctant to make long-term investments. Nevertheless, we should wait and see which tariffs will actually be introduced. Moreover, we also have to put the importance of the U.S. in global trade into perspective. Its bilateral trade with China only accounts for just under 3% of all global trade.

Trump has announced higher tariffs on the neighboring countries of Mexico and Canada, with which the U.S. has a free-trade agreement. How should countries respond to such threats?

First of all, they should monitor developments. Escalation should be avoided whenever possible, and efforts should be made to strengthen trade ties with other partners to reduce global tensions and mitigate economic fallout. A scenario in which everyone takes action against everyone else needs to be prevented. That said, Trump’s announcement highlights the limitations of friendshoring – the strategy of trading exclusively with allies – especially when even close partners like Mexico and Canada can become targets.

If trade policy is increasingly dominated by a friend-vs-foe dynamic, shouldn't we focus more on plurilateral agreements, that is, agreements between smaller groups of countries?

Such agreements can be beneficial and are already being promoted in the WTO, for instance in the e-commerce sector. Plurilateral and bilateral agreements function like supplementary insurance, but they do not offer absolute stability. Whether they should be concluded exclusively between friendly states is another question. The focus on national security strongly contradicts earlier convictions that economic interdependence should also be encouraged between rival countries.

At present, the conflicting goals of independence and trade are dominating the discourse.

That is the core problem. At the end of the day, those who focus on their independence ultimately invest in their weaknesses. After all, there was a reason why goods were previously imported from another country, such as comparative advantages and trade profits. Those who want to do everything themselves have to give up these advantages and thus weaken themselves. I am convinced that it would often make more sense to use international trade and invest in one's own strengths.

So you are saying that it is not independence but trade that allows countries to become stronger and more secure.

Of course, there needs to be a balance between complete openness and absolute self-sufficiency. Governments must specifically analyze which dependencies are critical and where their competitive advantages lie in order to strategically build on them.

If countries are increasingly focusing on security, does that suggest that globalization perhaps went too far? With regard to supply chains that were synchronized for just-in-time production and no longer allowed for any disruptions, for example?

We are currently experiencing a war in Europe; before that, there was a pandemic. Such events naturally have an impact on trade. It is unrealistic to expect the economy to be structured in a way that it can simply absorb such significant shocks. But overall, trade proved to be surprisingly resilient during the pandemic and played a crucial role in overcoming it. Global trade flows returned to pre-crisis levels just three quarters after the first lockdowns.

Recently, more and more countries have resorted to subsidies instead of tariffs to protect their domestic industry. Why has the WTO struggled to address this?

We are indeed seeing a renaissance of industrial policy. Countries are employing subsidies and other instruments such as local production requirements or government procurement. There are WTO agreements for each of these measures that are intended to restrict their application.

Why aren't these agreements more effective?

There is certainly a need for reform in this area. Some member states argue, for example, that the current subsidy rules do not sufficiently restrict China's industrial policy or that there needs to be more scope for subsidies for green technologies. However, this means that we have to change these regulations instead of circumventing them. Otherwise, the credibility of the whole system would be weakened.

Advocates of protectionism also often argue that unprotected free trade leads to structural shocks and a loss of jobs.

The rapid growth of the Chinese economy, reinforced by technological change, has indeed led to problems in the American labor market. What is often overlooked, however, is the fact that the past 30 years have also seen a historically unprecedented convergence between poorer and richer countries, which has lifted hundreds of millions of people out of poverty. And this is thanks to, not despite, trade. In 1995, the proportion of people living below the poverty line of $2.15 per day was 40% in low- and middle-income countries. Now, it is at 11%. That is a success story.

However, this China shock can also lead to political polarization and setbacks, as can be seen in the U.S. with Donald Trump.

That's true, but I still find the term «China shock» to be inappropriate, because it was an economic miracle for a considerable part of the world's population. By the way, there is no statistically clear link between openness and inequality. There are very open countries with relatively equal income distribution – and those with unequal income distribution.

Nevertheless, there is the dispute between the U.S. and China, which is increasingly leading to a divergence of normative frameworks.

Yes, with far-reaching consequences for trade. On the one hand, we can see a fragmentation of the trade in goods along geopolitical lines. On the other hand, it is proving increasingly difficult to find common rules for international data traffic. This is problematic because the future of trade is at stake here. Digital commerce with services such as accounting, marketing and IT has huge potential. In principle, everything that can be achieved from home can also be accomplished abroad. It is important to create an appropriate regulatory space in this regard.

In the traditional industrial sector, on the other hand, reshoring is a more likely possibility.

Yes, because automation is leveling out competitive differences.

There are also security arguments against opening up the digital sector.

Yes, and they are justified to a certain extent. However, it is easy to imagine that protectionism could also extend to the digital sector in the future if solid rules are not put in place. If service jobs are threatened by artificial intelligence, demands for protectionist measures against digital service imports will follow swiftly.

At present, it seems that the East and the West are striving to separate their economic areas.

The costs of such a division into two economic areas would be considerable. According to our calculations, it could lead to a loss of prosperity of up to 5% of economic output in the goods sector and a loss of prosperity of up to 1% in the digital sector.

Conversely, artificial intelligence also offers new opportunities to increase efficiency in trade.

In the best-case scenario, it can help break down language and cultural barriers and significantly reduce trading costs. There is also evidence that artificial intelligence makes everyone more productive, especially those who are still relatively unproductive today. However, this is only the case if the right regulations and the right infrastructure are in place, of course.

Unfortunately, the WTO's principle of unanimity effectively prevents it from establishing the appropriate regulations in this regard.

Of course, it is not easy for 166 countries to agree. But our members have just unanimously reelected the Director General. The principle of unanimity makes the WTO a truly multilateral organization that cannot be accused of only representing Western positions. However, there are efforts to allow decisions to be made on the basis of a «responsible consensus» in future. This would prevent one or two member states from having the ability to unilaterally block everything.

What will it take for the WTO to remain a key player over the next 20 years?

Things won't work without the willingness of the major members; we must not fool ourselves in this respect. But as I said, the WTO brings tangible benefits for everyone. I am confident that the major WTO members will continue to develop this set of rules and will still want to use it in twenty years' time.