As major global superpowers turn inwards with many trade shocks and diplomatic tantrums, governments around the globe have made the calculated decision to turn towards each other instead, forming partnerships that would have seemed improbable just a year ago. This is reflected in rising South-South trade, which reached over $5.3 trillion in 2023 (UNCTAD, 2023). 

This op-ed examines the advantages of South-to-South cooperation (SSC), defined as collaboration among developing nations or the Global South. Although China is considered an upper-middle-income country, it continues to position itself within Global South institutions such as BRICS, and is therefore included in this analysis. SSC includes economic, political, and security partnerships. As a result of SSC, developing states would be pivoting away from developed nations such as the U.S. and major developed nations in the EU. This represents a recalibration of reliance rather than a severing of existing diplomatic ties.

Current Free Trade with MNCs

Current free trade arrangements are dominated by multinational corporations (MNCs) that often limit the long-term economic development of emerging markets. Their main objective is not upliftment of the local economy but rather profit maximization and cost minimization.

These incentives can lead to a “race to the bottom,” where governments compete for foreign investment by lowering labor or environmental standards. In some cases, MNCs have the ability to lobby the governments of developing states to deregulate, price out local competition or create the existence of sweatshops to minimise cost while exporting these goods to markets with higher consumer spending power to maximise revenue. This is reflected in findings that show more than 94% of garment workers in major global supply chains earn below a living wage (Clean Clothes Campaign, 2023).

Consequently, local labour wages are suppressed. Local companies are forced out of the competition. Thus, the benefits of the economic development barely trickles down to the local populace.

Developmental Aid and Conditional Loans

Institutions such as the International Monetary Fund (IMF) offer conditional loans rather than direct aid, giving them significant influence over domestic-monetary policy choices, which is a common critique of these mechanisms. This model of “tied aid” frequently includes conditions such as trade liberalisation requirements, deregulation and austerity policies. These conditions can ultimately benefit lending countries or external investors rather than the local economy of the nation affected. 

When these requirements are forced upon before domestic industries are prepared to compete globally, it results in local industries failing, price inflation caused by austerity measures, while intensifying cost-of-living pressures. This pattern appeared in at least 17 low-income countries in 2022, where value-added tax increases linked to IMF programs contributed to rising living costs (Oxfam, 2022).

The Unreliability of the Developed World

Even when free trade or foreign assistance seems to provide short-term benefits, many developing countries view partnerships with the developed world as increasingly unreliable. The economic gap between developed and developing nations has been shrinking dramatically in the 21^st century, with Global South economies contributing over 55% of global growth over the last decade (World Bank, 2023). As relative advantages shift, many developed nations have adopted more protectionist policies, as demonstrated by the United States under the current Trump administration’s “America First” platform, or the United Kingdom's withdrawal from the European Union in 2020 (Brexit).

This unpredictability creates a difficult environment for developing states. They may find themselves trapped in trade relations that disproportionately favor their developed trading partner or when they are benefitting they may face sudden policy reversals if developed economies shift towards isolationism. 

The Comparative of a South-Centred World

South–South cooperation (SSC) can offer an alternative developing model. Many SSC initiatives operate through bilateral agreements, such as China’s Belt and Road Initiative (BRI), which has financed or upgraded more than 10,000 kilometers of railways, 100,000 kilometers of roads, and nearly 100 ports (Ministry of Commerce of the People’s Republic of China, 2023).

These projects often prioritize the improving of diplomatic ties and their national image. In terms of policies, they promote infrastructure development, workforce training, and partnerships with local firms, supporting mutual development rather than pursuing short-term financial gains.

As a result, developing states are more likely to benefit under the SSC framework, as the primary incentive of developing nations’ is aligned with the ability to improve the livelihoods of the citizens.

References

Clean Clothes Campaign. (2023). Tailored wages 2023: The state of pay in global garment supply chains.

Ministry of Commerce of the People’s Republic of China. (2023). Belt and Road Initiative progress report.

Oxfam. (2022). IMF austerity and VAT hikes in low-income countries.

UNCTAD. (2023). South-South trade statistics 2023. United Nations Conference on Trade and Development.

World Bank. (2023). Global economic prospects: Growth contributions by region.