When I wrote about international trade and the presidential campaign recently, I characterized the seven-year-long Doha Round global trade negotiation as being "stuck on neutral." As it turned out, the negotiation promptly thereafter took a negative turn.
Within 24 hours, the round unexpectedly collapsed — in particular because rising economic powers China, India, and Brazil, allied with developing countries, refused to submit to terms of reference they saw as set by the U.S. and the European Union. Earlier, the U.S. and EU had offered to reduce their barriers to farm imports in return for concessions on industrial imports.
If the Doha Round is not revived, it will be the first such global negotiation to fail since the Kennedy Round of the 1960s launched such multilateral reductions in tariff and non-tariff barriers to international trade.
- If the round truly is dead — or on hold for a lengthy period — protectionist pressures will rise in all countries. Beyond that, non-first-world countries can be expected to resist other multilateral initiatives sponsored mainly by the West, including efforts to combat global warming.
- China, in particular, has bridled at being subject to World Trade Organization groundrules (and, thus, being subject to WTO complaints launched by others) and may return to an aggressive posture in which it makes economic, trade, and financial deals with African and Asian countries, in particular, which would not pass WTO muster. Such deals will be aimed at increasing Chinese political and economic influence in these regions.
- A U.S. President Obama or McCain will be placed in a new policy environment in which global trade liberalization, through the WTO, no longer can be the prime focus of U.S. policy. Reduced in importance, the WTO may also be less effective in dealing with complaints and allegations of violations launched by U.S. companies and industries. All of this will further feed protectionist sentiment in the country and in the Congress.
There have been crises before in global trade negotiations. Always before the negotiations have been rescued — sometimes after a cooling-off period. This may not happen this time. If that is the case, this will turn out to have been a bad week for the American and global economies.