Trade Policies for Combating Inequality: Equal opportunities to firms, workers and countries

The 2030 Agenda for Sustainable Development seeks to eradicate poverty, increase access to basic services, protect and preserve the environment, foster economic growth and development, and ensure peace and stability in all countries through comprehensive and integrated actions.

Within this ambitious framework, Sustainable Development Goal (SDG) 10 aims at reducing economic inequality within and between countries by targeting more rapid income growth at the bottom of the income distribution, as well as more equal opportunities and less unequal outcomes.

This report discusses the impact of international trade on inequality, and policy actions aimed to make the benefits brought by international trade more inclusive. It identifies several factors why trade has contributed to reduce between country and higher within country inequalities.

This report is structured as follows:

  • Chapter 2 assesses the connection between trade policy reforms and between country inequality in the context of rapid integration of developing countries into the global economy in the 1990s, and alongside the process of globalization fuelled by trade, finance and technology.

    It shows that trade reforms have contributed to reducing income inequality between countries, but they have also been accompanied by a polarization of the distribution of income in the world, and in some places with large increases in within-country income inequality.

  • Chapter 3 summarizes what has been learnt over the last two decades about the relationship between trade and income inequality.

    Firstly, trade has indeed led to sizeable increases in income inequality in many countries, but it is far from being the main driver of it.

    Secondly, to reduce within country inequality what is needed is not necessarily less but more trade, in order to give a larger number of workers access to the benefits offered by global markets.

    Third, inequality can be better addressed if trade reforms are accompanied by non-trade adjustment and redistributive measures that address the unintended, negative consequences of greater integration into world markets.

  • Chapter 4 examines the impact that different trade policy instruments and institutions have had on between- and within-country income inequality. The discussion covers tariffs and non-tariff measures as well as private standards.

    A key message from this chapter is that non-tariff measures, even if set in a non-discriminating manner, tend to discriminate against countries, especially developing countries with weaker production and trade capacities. Non-tariff measures also act as formidable barriers for small firms to enter global markets, which in turn tends to increase within-country income inequality.

  • Chapter 5 provides some thoughts regarding the role of trade, and related complementary policies, in helping to combat inequality, and in boost the achievement of the sustainable development goals generally.

    The discussion identifies some of the most promising policy actions and institutions that would improve opportunities to firms, workers and countries to be beneficiaries from global markets.

  • Chapter 6 concludes.