3 - The interactions of trade, macroeconomic policies and sustainability

Summary

The relation between trade liberalization and the environment has been the object of many studies, both in the academic and the policy-making communities. Myriad research projects have been carried out at the sector level or at the economy-wide level, using applied general equilibrium models. A great variety of environmental dimensions have been covered by these studies (Khan 2002; UNEP-IISD 2005; Gallagher 2008). However, one crucial theme has escaped most of these analyses. It is the fact that trade liberalization is but one component of a bigger policy package in which monetary and fiscal policies, financial deregulation and income policies play a much more important role in determining and shaping the economic forces that affect the environment. Trade and environment studies are too often carried out as if the other macroeconomic policies did not matter. Even themes such as subsidies and exchange rate manipulation are seen through the lens of trade policy, not as key components of fiscal and monetary policies. This is unfortunate because it is difficult to interpret the impact of trade and trade liberalization on the environment (and on people’s livelihoods) without an analysis of the entire set of macroeconomic policies that condition trade dynamics.

This chapter makes the argument that taking sustainability objectives seriously demands that we examine global trade, and its governance, not in isolation but in light of their interaction with the other components of macroeconomic policies and governance systems.