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WORLD TRADE REPORT 2021Forewordby the WTODirector-GeneralThe COVID-19 pandemic has neatly illustrated themulti-faceted ways in which globalization touchesour lives. The deep interconnections of travel, tradeand financial flows that characterize our era allowedthe novel coronavirus and its associated economicshocks to spread around the world in a matter ofweeks. Earlier pandemics took months, even years, togo global.Yet, globalization was also at the heart of why thisvirus was met with vaccines in record time. Scientistswere able to share ideas and technology acrossborders, backed by public and private funding forresearch and development. As the new vaccinesproved to be safe and effective, supply chains cuttingacross hundreds of sites in a dozen or more countriescame together to provide the specialized inputs andcapital goods needed for vaccine production on alarge scale – all within a year.Nevertheless, access to COVID-19 vaccines remainshighly inequitable. At the time of writing, vaccinationrates in Africa and in low-income countries remainin the single digits, while in rich countries, and,increasingly, in upper middle-income economies,large shares of the eligible population are vaccinated,with individual hesitancy being the main obstacle touniversal coverage.4Global production of COVID-19 vaccines isprojected to reach 12.4 billion doses by the end of2021 – a dramatic increase compared to the world’sannual pre-pandemic production capacity of 5 billiondoses for all vaccines – but this is still not enough,especially as evidence of waning immunity is leadingmore and more countries to pursue booster shots.Trade will continue to be central to getting thevaccine production and distribution we need, whichare a prerequisite for a strong, inclusive and lastingeconomic recovery. Looking to the future, trade willalso be at the heart of building a more decentralizedand diversified production base for vaccines,therapeutics and diagnostics that would be moreresilient in the face of future pandemics.COVID-19 took us by surprise, despite manypredictions that the world was overdue for arespiratory virus pandemic. Other risks are morefirmly established on our radar screens, from climatechange to natural disasters. Here too, trade can helpus better prepare for, and respond to, the eventualshocks associated with those and other risks.This year’s World Trade Report reviews the role oftrade, trade policy and international cooperation inbuilding and supporting economic resilience in theface of natural and man-made disasters, includingthe COVID-19 pandemic. It finds that today’s highlyconnected global economy is more exposed to risksand vulnerable to shocks, from supply chain cut-offsto infectious disease outbreaks, but that it is alsomore resilient to shocks when they do strike.The report finds that trade cooperation is instrumentalin improving resilience to shocks, because itpromotes greater diversification of products,suppliers and markets. It points to ways in whichtrade can sustain economic resilience for households,firms and governments, particularly when supportedby complementary domestic policies and effectiveglobal cooperation.Anticipating, evaluating and managing risks is key topreparing for shocks. Diversifying supply sources anddestination markets are two strategies for doing so,as is building inventory stocks of critical inputs. Otherrisk reduction and early warning strategies, such asweather forecasting, insurance, telecommunicationsand health services, can be enhanced by greatertrade in services.When a shock hits, trade can help to mitigate theimpact by allowing households and businessescontinued access to goods and services. During theCOVID-19 crisis, despite some pandemic-relatedexport restrictions, trade helped countries meetthe skyrocketing demand for medical products. In2020, even as the value of global trade declinedby 7.6 per cent, trade in medical supplies grew by16 per cent. Trade in personal protective equipment

FOREWORD BY THE WTO DIRECTOR-GENERALincreased by nearly 50 per cent – and by480 per cent for the textile face masks that havebecome so familiar to all of us. Trade in agriculturalproducts remained stable in 2020, preventing thehealth crisis from becoming a food crisis.Once shocks begin to stabilize or dissipate, tradecan accelerate economic recovery: on the importside, by facilitating access to competitively pricedintermediate products and services; and on the exportside, by enabling access to foreign demand. Forpoorer economies with limited fiscal space, trade isparticularly important as a driver of economic growth.The early stages of the pandemic were marked byconcerns that global value chains (GVCs), especiallythose with high levels of dependency on particularnodes or countries, could break down and becomea new source of cascading shocks. Although therewere instances of factory closures in one part ofthe world forcing assembly lines elsewhere to stopoperations temporarily, GVCs have thus far beengenerally resilient, and have helped to drive thecurrent economic recovery. Merchandise trade hasrebounded faster than gross domestic product,propelled by fiscal and monetary stimuli, along withgovernments’ broad restraint in the use of tradeprotectionism.However, coupled with investment cutbacks inearly 2020 by businesses anticipating a prolongeddownturn, the unexpectedly sharp rebound indemand, further ramped up by business inventoryaccumulation and a shift in spending from curtailedin-person services to consumer goods, has led tosupply chain bottlenecks and disruptions. Thesehave been exacerbated by extreme weather events,accidents like the ship that blocked the Suez Canal,and COVID-19-related shutdowns in important portsand production locations. In spite of all these factors,the resulting transport cost increases and deliverydelays appear likely to prove transitory.Trade, economic growth and risk management aremutually supportive at the country level as well. GDPrecovery has been faster in economies with strongpre-pandemic trade ties to countries with fewerCOVID-19 cases.International trade can, however, under certainconditions, propagate shocks, such as financialcrises, international transport disruptions, supplychain cut-offs and diseases. For example, tradedependent, relatively undiversified economies havebeen hit particularly hard by the COVID-19 pandemic.Better access to COVID-19 vaccines is thereforeessential to ensure a rapid economic recovery,highlighting that vaccine policy is trade policy, andvice versa.Pandemic-related economic stresses have promptedcalls in some countries to re-shore production,promote self-sufficiency, and unwind trade integrationwith the goal of building a more “resilient” economy.This report argues that such strategies are unlikelyto be effective: national self-sufficiency wouldbe expensive and inefficient, or even technicallyimpossible in some sectors. Reduced exposure toshocks emanating from other countries would bereplaced by increased vulnerability to domesticshocks – this time without the resilience mechanismsoffered by international trade. Conversely, increasedtrade integration has been associated with decreasedmacroeconomic volatility.While the WTO already contributes to economicresilience in important ways, it can and must domore, as we confront a future of increasing naturaland man-made risks and disasters. As we have seenwith pandemic-related trade measures, enhancingtransparency and predictability is important to providepolicymakers and businesses with the informationthey need to make informed decisions. Actions tokeep key products moving freely around the worldwould foster resilience, as currently illustratedby the need for bottleneck-free supply chains forCOVID-19 vaccines. Ongoing negotiations at theWTO on services, investment, agriculture, electroniccommerce and micro, small, and medium-sizedenterprises could create further opportunities forinclusive trade and diversification, making economiesmore resilient in the future. The WTO’s upcoming12 th Ministerial Conference, from 30 November to3 December 2021, offers an opportunity for membersto advance on these fronts. Reinvigorated internationalcooperation, not a retreat into isolationism, is themore promising path to resilience.Dr Ngozi Okonjo-IwealaDirector-General5

WORLD TRADE REPORT 2021Executive summaryThe health and economic crisis caused by theCOVID-19 pandemic has been a massive stress testof the world trading system, delivering unprecedentedshocks to global supply chains and trade relationsamong countries. In 2020, the value of global tradein goods and services in nominal dollar terms fell by9.6 per cent, while global GDP fell by 3.3 per cent,in the most severe recession since World War II.However, the trading system has proved itself moreresilient than many expected at the outset of the crisis.Although initially the pandemic severely disruptedinternational trade flows, supply chains have rapidlyadapted, goods have continued to flow across borders,and many economies have gradually begun to recover.The global trading system has been a source offlexibility, diversification and strength during thepandemic, helping countries cope by facilitatingaccess to critical medical supplies, food andconsumer goods, and by supporting their economicrecovery (see Figure 1). According to the WTO’smost recent forecast, global economic output (atmarket exchange rates) is projected to recover by 5.3per cent in 2021. This has been, in part, thanks to therobust recovery in merchandise trade, which is set torise by 8 per cent in 2021. However, trade in servicescontinues to remain depressed.The 2021 World Trade Report looks at why theinterconnected global trading system is bothvulnerable and resilient to crises, how it can helpcountries to be more economically resilient to shocks,and what can be done to make the system betterprepared and more resilient in the future. Theseare pressing questions in light of the prospect ofincreasingly frequent and more intense natural andman-made disasters.For example, climate change is driving increases inextreme weather events, such as droughts, cyclonesand floods, which can have devastating effects.Human encroachment on animal habitats can increasethe risks of spreading zoonotic diseases, which couldpotentially lead to another pandemic. Although saferproduction processes have reduced the frequencyof technological and industrial disasters, incidencesof cyber-attacks and data fraud are expected tocontinue to increase. Rising inequality, increasingeconomic fragility, and growing political uncertaintyand geopolitical tensions are augmenting the risk ofconflicts and violence. While there is a tendency tolook at these risks individually, they can interact witheach other and create cascading risks and shocks tothe environment, economy and society.All of these risk trends can result in high numbers ofdeaths, injuries and illnesses, as well as substantialeconomic losses. For example, earthquakes causedover 884,000 deaths between 1980 and 2020. Therewere over 4,800 floods around the world during thesame period, which affected over 3.5 billion people.The total economic cost caused by natural disastersbetween 1980 and 2020 amounted to US 3.6 trillion(EM-DAT, 2020).These risk trends have significant social consequences.In times of crisis, poorer households are particularlyFigure 1: Global trade has been more resilient during the COVID-19 pandemic than duringthe 2008-09 global financial crisisGlobal financial crisis6,500COVID-19 pandemic6,000US 0520072009201120132015201720192021Source: Authors’ calculations, based on WTO trade data (https://data.wto.org).Note: The figure displays the evolution of non-seasonally adjusted quarterly world trade volume for countries that reported bothmerchandise and commercial services trade flows.6

EXECUTIVE SUMMARYvulnerable to further losses in income, higherincidences of children leaving school at an earlyage, lost access to health care, and poor nutrition.Around 26 million people fall into poverty every yearas a result of natural hazards, such as floods anddroughts.The COVID-19 pandemic has exacerbated existinggender inequalities in employment rates and hoursworked due to women’s greater responsibility for childand elder care, as well as their greater representationin face-to-face services disproportionately affectedby the pandemic. Micro, small and medium-sizedenterprises, which tend to have poorer and morevulnerable workforces, have suffered more thanlarger firms from the effects of the pandemic, owingto their limited access to finance, physical and digitalinfrastructure and to information on risk management.In global terms, economic disruptions tend to havea greater impact on developing countries, and inparticular on smaller, poorer countries, than onadvanced economies.This report assesses the relationship of trade,trade policy cooperation and the multilateral tradingsystem to economic resilience. Although “economicresilience” has become a popular term to capture thebroad and diverse factors and strategies needed toreduce business interruptions and economic lossescaused by shocks, it lacks a common definition.This report defines “economic resilience” as theability of a system, including households, firms, andgovernments, to prevent and prepare for, cope withand recover from anding of economic challenges andopportunities, as well as the ability to anticipate,evaluate and manage risks. Although a broad range ofeconomic resilience strategies and actions, includingthose related to trade policies, can be adopted byfirms, households and governments, one issue thatis receiving a significant amount of attention in thepublic and policy debate is the role of internationaltrade in building and supporting economic resilience.A basic binary assumption underlies much of thecurrent debate – namely, the notion that thereis an inherent trade-off between global tradeinterdependence, on the one hand, and domesticeconomic security, on the other, and that the pursuitof economic efficiency is incompatible with thepursuit of economic resilience. This report exploresand re-evaluates this assumption.The report suggests that these objectives are ofteninterconnected and mutually reinforcing – a realityobscured by presenting them as an either-or choice –and argues that trade is a means to build and supporteconomic resilience, particularly if it is backed byrelevant domestic policies as well as effective globalcooperation and rules.The report conveys three main messages: first, today’shyper-connected global economy, characterized bydeep trade links, has made the world more vulnerableto shocks, but also more resilient to them whenthey strike; second, policies which aim to increaseeconomic resilience by unwinding trade integration –for example, by re-shoring production and promotingself-sufficiency – can often have the opposite effect,effectively reducing economic resilience; and third,strengthening economic resilience will require moreglobal cooperation.Today’s hyper-connected global economy,characterized by deep trade links, has made theworld more vulnerable to shocks, but also moreresilient to them when they strike.Trade can increase countries’ vulnerabilities andexposure to hazards, as well as facilitating thetransmission of those hazards, through economic,financial, transport and digital linkages. At thesame time, trade, as a key driver of productivity andeconomic growth, helps countries to generate theresources they need to prevent risks and prepare for,cope with and recover from shocks.Trade also plays a key role in diversifying access toglobal goods and services; for example, it enablescountries to cope with shocks by switching supplierswhen crises disrupt established supply relationships,whether domestic or foreign. Firms that participatein trade, especially exports, have a greater likelihoodof surviving economic downturns, due to their higherproductivity, on average, than firms in non-exportingsectors, as well as their tendency to have access tomore diversified markets.Trade-related mobility can be a vector for diseasetransmission. This includes human mobility, in theform of travel and labour migration, but also trade inlivestock and in other agricultural products, particularlywhen trade is illicit or unregulated. For legally importedanimals, these risks are reduced by disease screening,quarantine requirements and the enforcement ofrelevant sanitary and phytosanitary measures.However, mobility also offers solutions as it allows forthe faster diffusion of knowledge, thereby facilitatingthe research and development that can lead to findingcures for infectious diseases in the short term, andbolstering health systems in the long term.7

WORLD TRADE REPORT 2021Trade-driven interdependence – especially the riseof global value chains – can also increase exposureto sudden cut-offs in the supply or demand of inputsor outputs, as well as vulnerability to disruptions ininternational transport networks. As a result, evenrelatively small shocks to one “link” in the value chaincan temporarily block or disrupt highly interconnected,“just-in-time” production and distribution networks.For example, the 2011 Tōhoku earthquake in Japanis estimated to have reduced the growth rate offirms with disaster-hit suppliers by 3.6 percentagepoints, and the growth rate of firms with disaster-hitcustomers by 2.9 percentage points (Carvalho et al.,2021; Tokui, Kawasaki and Miyagawa, 2017).On the other hand, given the high costs of establishingsupplier networks, the long-term relationships thatunderpin value chains provide firms with an incentiveto keep and adjust their trading relationships withoverseas suppliers, even in difficult times. Thiscan improve the resilience of trade to crises, thusreducing the volatility of trade flows and their impacton growth. The presence of value chains also canhelp to accelerate recovery of production following ashock by transmitting the recovery occurring in oneregion to other regions along the value chain. Firmscan adopt policies to enhance global value chainresilience, for example by diversifying their sourcesof supply, increasing inventory stocks and fosteringflexible production across sites.Trade can indirectly contribute to increasedenvironmental risks, including deforestation, intensivefarming and climate change. For example, while tradeitself may not be a leading source of greenhouse gasemissions, it does cause emissions to be generatedthrough transport and by enabling increasedproduction. In the absence of effective climate changepolicy, such emissions contribute to climate changeand the risk of climate-based natural disasters.Trade can, however, also mitigate the risk of climatechange by facilitating the adoption and deploymentof environmental goods, services and technologies,including clean and renewable energy. Trade can alsocontribute to climate change adaptation by bridgingthe difference between supply and demand acrossregions; for example, as some regions experiencefalling yields for some crops, others will experiencerising yields.8Trade in services can also be crucial in helpingcountries prepare for and cope with shocks. Forexample, weather forecasting and early warningsystems can anticipate and spread information aboutstorms, fires, floods, droughts and earthquakes.Insurance supports incomes and encouragesefforts to reduce risk – although the effects ofsome important shocks (including earthquakes andcommunicable diseases) are excluded from manyinsurance contracts. Telecommunications, includingboth traditional and new technologies, can provideessential information for addressing disasters.Transportation and logistics services enable thedelivery of supplies, while inadequate servicescan have disastrous implications during a crisis,as demonstrated at the outbreak of the COVID-19pandemic. Finally, imported health services can easethe burden on overstretched domestic resources.Improving the efficiency of the domestic servicesthat affect trade also plays a key role in buildingand supporting economic resilience. Slow customsprocedures and processes, such as refusals torelease goods until payment is received in full, delaysin determining which goods are exempted from tariffs,and burdensome documentation requirements, canimpede the delivery of emergency supplies duringdisasters. Landlocked countries are particularlyvulnerable to disruptions in the delivery of essentialsupplies due to transit issues. Several countrieshave undertaken trade facilitation measures sincethe outbre

by Eddy Bekkers and José-Antonio Monteiro. The authors of the report are Marc Auboin, Marc Bacchetta, Francesco Bellelli, Cosimo Beverelli, Eddy Bekkers, Emmanuelle Ganne, John Hancock, Katharina Laengle, Kathryn Lundquist, José-Antonio Monteiro, Roberta Piermartini, Yves Renouf, Victor