Sustainability is much more than a buzzword now, particularly in the face of challenges wrought by COVID-19 and its myriad impacts on economies and societies around the world. As the global macroeconomic environment remains fraught with uncertainty—with continued supply chain pressures, hard-to-contain inflation, a growing exasperation with free trade and low economic growth—there’s a renewed focus on sustainability.
The Sustainable Trade Index, which ranks 30 economies’ behaviour and effects of international trade on sustainability and economic prosperity, was recently published by the Institute for Management Development (IMD) and the Hinrich Foundation. The Index ranks these economies by their capacity for global trade in a manner that supports sustainable trade at a time of political and macroeconomic uncertainty.
The index is topped by New Zealand and there are five more Asian economies in the top 10, namely Hong Kong at 3, Japan (4), Singapore (5), South Korea (8) and Taiwan (10).
Exhibit 1: Asian countries perform well on the Sustainable Trade Index
In this interview with Christos Cabolis, chief economist at IMD Business School, we find out more about the rankings, the links between globalisation and sustainability, and the growing need for finding the right balance between economic growth and ESG imperatives. We do so with a particular focus on the performance of Asian economies.
Unravel: What are some of the trends you see shaping global trade in the near-future?
Christos Cabolis: There are three important concerns that will shape global trade in the near future. First, making supply chains more resilient. The global experience of the last three years urges governments and firms to re-evaluate overreliance on a country or region for critical inputs of final products. Second, improving the use of technology and digitalisation. This is important both for effective remote work as well as assessing critical data for the demand and supply of goods and services. Third, incorporating the externalities generated from the goods and services traded in the performance measures. This will require innovative regulations and incentives to align performance criteria with the social and environmental goals of governments and firms.
Unravel: Singapore was one of the few Asian countries that was quick to stem the impacts of the pandemic by announcing several initiatives and fiscal stimuluses to keep the economy floating. But the report mentions that Singapore ranks 10th in terms of consumer price inflation. What can Singapore do to better address high inflation?
Mr Cabolis: The fiscal and liquidity provisions that Singapore and most of the countries around the world used to stimulate their economies during the pandemic is partially the reason we are experiencing globally high levels of inflation. Governments are addressing the current levels of inflation by reducing spending on goods and services. Singapore and other countries must find the right balance of introducing contractionary monetary policies, increasing the interest rate for instance, without leading the economy into a recession.
Unravel: In terms of tariff and non-tariff barriers, Singapore managed to only score 51.6. We have always assumed that the nation-state has been a strong advocate of free trade. Please explain why is this the case?
Mr Cabolis: Singapore is indeed a strong advocate of free trade. As we outline in the report, the state has the lowest level of trade costs and has effectively reduced system inefficiencies such as lengthy custom procedures, opaque legal system, and corruption. Measures of 2021 new tariff and non-tariff barriers, however, place Singapore on the average of the economies we study.
Unravel: It is surprising to see Taiwan and Philippines in higher ranking than China in the Economic pillar. Why is this so? Is it only to do with the impacts of the pandemic on China considering its rather tougher stance of zero-COVID?
Mr Cabolis: China is the second largest economy in the world with respect to GDP. And this is despite the effect of the lockdowns due to the pandemic in the last three years. In the economic pillar however, we take into consideration indicators such as trade liberalisation, tariff and non-tariff barriers, or the inflow of foreign direct investments, to name just a few, where China does not perform as well.
Unravel: New Zealand ranks 1st in both the Societal and Environmental pillars, but ranks 7th in the Economic pillar. Does this mean that achieving societal and environmental goals will always be at the cost of economic growth? Please explain.
Mr Cabolis: The correlation among the three pillars is not strong. That is, economies that perform well in the economic pillar are also performing well in the societal pillar. And there is not really a strong relationship between the economic and the environmental pillar. The important point of the STI is that countries need to balance the economic benefits with social and environmental objectives in order for trade to be sustainable.
Unravel: What is your outlook towards sustainable trade in Asia?
Mr Cabolis: This will depend on the policies that different economies in Asia introduce for sustainable trade. Depending on the resources available, the level of economic development, and the vision of a country, successful economies will support the long-term goals of economic growth, environmental protection, and societal development. It is a challenging undertaking and remains to be seen how Asia—that has the potential to accomplish this—will approach it.
Christos Cabolis is the chief economist and head of operations at the IMD World Competitiveness Center. He joined IMD from ALBA Graduate Business School at The American College of Greece where he was an Associate Professor of Economics and Finance. Prior to ALBA he was the Executive Director of the International Center for Finance at Yale School of Management. His teaching focuses on courses related to business economics, macroeconomics, corporate finance, financial management and industrial organisation.