4 questions we must ask as values move to the centre of the trade agenda

Traditionally, the quest for greater economic efficiencies has been the primary driver of trade relationships. The desire for optimized production and greater profitability for corporations, and lower prices and wider product selection for consumers — along with the developmental opportunities expanded trade brings — has largely shaped the basis upon which we engage in trade.

Today, a profound shift is underway. Trade is no longer just about trade and economic efficiency. It is now also being used as a tool to advance a host of non-trade objectives (NTOs) – often including broader societal, ideological, strategic and even philosophical issues like identity.

In many instances, these NTOs embed value-laden judgements. Such judgements are evident in complex issues such as human rights, appropriate responses to climate change, labour rights, freedom of religion, governance models, indigenous rights and diversity and inclusion — all issues that are appearing more prominently on the trade agenda. It’s important to note that this increased focus on values is not merely a case of governments injecting these issues into trade agreements; many private companies have assumed leadership roles in conducting their operations in a way that aligns with many of the same underlying values.

While some NTOs — such as labour rights and sustainability — have existed on the fringes of the trade landscape for decades, two important factors differ today. First, the scope of values-laden NTOs has expanded dramatically to include controversial issues, and second, the willingness of countries to impose restrictions or provide preferences based on values has also grown significantly.

There is no single answer to why this is happening now. In any given situation, in which values are being used to condition market access, this change could be driven by a combination of different factors.

In some instances, the focus on values is being driven by sincerely held liberal progressive beliefs that certain societal norms and behaviours that would have been previously tolerated are not viewed as acceptable today.

The focus on values could also be driven, in other cases, by a healthy dose of cynicism. Trade negotiators like having leverage, and to the extent values can provide leverage, most negotiators are happy to use it. In the most extreme cases, disguised protectionism can also enter the mix.

In developed world democracies, there is also a need to be responsive to political constituencies that demand that “something be done” on particular hot-button issues, such as modern-day slavery. This conveniently dovetails with the political need (especially in the US and other countries where the benefits of trade are being questioned) to signal to voters that the country is no longer pursuing unvarnished free trade, preferring instead to produce more at home, or trade with “friends” who share “our values.”

This growing inclination is reinforced by the reality that the demarcation lines being drawn over values frequently track with the demarcation lines being drawn by those who perceive that the world is engaged in a “democracy versus authoritarianism” struggle.

Irrespective of the underlying motivations, however, examples of values being interjected into trade relationships abound. The US, EU, Japan and India are collaborating across several technology councils that position the promotion of shared “democratic values” as a primary objective in their trade cooperation. The EU has adopted a corporate sustainability due diligence directive which requires extensive audits of supply chains to ensure compliance with human rights and environmental benchmarks set in Brussels. The recently-strengthened EU parliament appears to be driving a tighter intertwining of values and trade.

Geopolitical and national security considerations are perhaps the most combustible NTOs to crash into the trade realm. A time of rising geopolitical tensions has overlapped with a period of deep trade integration. Inevitably, trade has become another arena in which geopolitical differences are contested. Advances in technology have only fanned the flames. Economic and military preeminence in the decades to come will be largely driven by mastery over strategic technologies such as AI, quantum computing, microelectronics and the semiconductors that power these technologies. These realities are driving a proliferation in trade and investment restrictions. Geopolitics, trade and values have never been entirely separate, but they are now more closely connected than ever before.

Setting aside the relative merits of any of the values-laden NTOs that are moving to the centre of trade agendas, it must be recognized that the increased intertwining of values and trade holds significant implications and presents a series of challenges. Here are four key questions we must answer about the future of trade.

The inculcation of values into trade relationships provides an impetus to exclude partners that don’t share your values and to bind more closely with partners that do — to gravitate towards so-called “friend-shoring.” This could potentially result in greater fragmentation, which would fly directly in the face of the post-war objective of creating a globalized, multilateral trading system.

The pursuit of values-laden NTOs in trade relationships is potentially exacerbating mistrust between the developed and developing world. It is viewed by many as just another form of “disguised protectionism” — a thinly veiled excuse to block imports from the developing world.

Companies are finding it increasingly difficult to thread the needle, balancing the desire for economic efficiency and profitability with the need to account for values-consideration and rising geostrategic tensions. Sourcing and production decisions can no longer be made primarily on commercial realities alone. Geopolitics and values are now squarely in the mix.

While much of the impetus for using trade to advance values is motivated by positive intentions, it must be accomplished in a way that makes trade better and more accessible, rather than breeding cynicism and barriers. This will require us to strike a nuanced and careful balance between our desire to advance truly universal values and the need to ensure that the transformative potential of trade remains open to all — especially those who need it most.