The Global Interplay between Trade, Geopolitical and Commodity Shocks



Idris Ademuyiwa and Pierre Siklos | Center for International Governance Innovation

Recent events have the potential to reverse the positive macroeconomic performance of the global economy and trigger a slowdown in both global growth and international trade. In particular, the implications of ongoing trade disputes that have undermined trust in the existing multilateral cooperation system and the incentive for countries to align with ongoing global policy coordination efforts. A compelling case for a mutually beneficial resolution of these tensions can be made by emphasizing the interdependence of the Group of Twenty (G20) economies — the G20 being the premier repository of international cooperation in economic and political matters. This study also considers the state of trade globalization, with an emphasis on the performance of the G20.

The emergence of geopolitical risks (GPRs), that is, events that heighten tensions between countries and therefore threaten global economic performance, is an attempt to quantify the potential economic impact of the nexus between politics and economics. In the presence of heightened political risks, negative economic effects become more likely. Nevertheless, there is no empirical evidence investigating the links between the real economy, trade, the state of the financial sector, commodity prices and GPRs. Moreover, there is no evidence on these links that has a sample of countries that make up the G20. This paper begins to fill this gap.

Relying on descriptive and statistical evidence, the conclusion is drawn that GPRs represent a significant factor that threatens global economic growth and economic performance, in the G20 countries in particular. Ultimately, however, GPRs reflect other factors, including threats stemming from trade tensions and large swings in commodity prices. If policy makers focus on attempts to mitigate the negative economic impact of trade and commodity price shocks, this may well produce a decline in GPRs. Trade and commodity price shocks have the potential, especially when combined with changing GPRs, to reduce economic growth in the G20 economies.

The extent to which the G20 can retain the mantle it designated for itself of “premier forum for international cooperation” is in question. In the past few summits, trade, and economic tensions more generally, have played important roles on the agenda, but without a credible resolution of ongoing disagreements.

The Global Interplay between Trade, Geopolitical and Commodity Shocks

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