First Principles October 2006

The Fruitful Lie

Trade agreements have always been greased by deception about who benefits. Now they’re failing because leaders have come to believe their own lies

And the Doha Round failed for another reason. Global trade talks are extremely complex, and a single government can veto the whole deal. So the proceedings need to be firmly led. They used to be—by America—but for a variety of reasons the task has become more difficult, and Washington no longer brings as much energy to it. Recent administrations developed an alternative: hub-and-spoke trade pacts like the North American Free Trade Agreement. Again, the thinking behind this strategy is purely mercantilist: maximize exports for any given increase in imports. Regional trade deals serve that purpose because they let the United States use the bargaining power of its huge domestic market more effectively, and thereby wring bigger concessions from its trading partners.

This local activity drains commit­ment from the wider global process. Worse, it creates new interests op­­posed to global liberalization. Mexico extracted hard-won privileges to sell goods on favorable terms in the United States as part of the NAFTA talks (at the “cost,” remember, of opening its own markets to American exports). Universal trade liberalization would diminish the value of those privileges by sharing them more widely—America would turn to other developing countries for some of the imports it currently buys from Mexico under those special arrangements. In effect, NAFTA has given Mexican exporters an interest in resisting a generalized lowering of trade barriers. And NAFTA is only one of many regional free-trade agreements that have the United States at the center.

How much does it matter that the Doha Round has failed? It depends on what happens next. The failure to liberalize is certainly expensive: estimates of the worldwide losses stemming from trade barriers vary, but over time the cost will surely run into the trillions of dollars. And the biggest losers will be developing countries, including Brazil and India. That is the saddest aspect of this breakdown. The United States and other rich countries have already opened most of their markets to trade; their remaining protection, costly as it is, is mostly confined to particular industries, like farming and textiles. For the most part, that’s not true of developing countries. Their tariffs and other import barriers are still relatively comprehensive and high, keeping imports expensive and sheltering manufacturers from the foreign competition that would raise productivity and growth.

The global cost of the Doha Round’s collapse will be even greater if previous commitments to liberal trade start to unwind. Up to now, the World Trade Organization has acted as an obstacle to backsliding, by policing the promises made by members and arbitrating frequent disputes. Its ability to do that is not yet in question, but it soon might be. At a minimum, the use of global treaties to spur further liberalization looks unlikely at the moment.

So are we at an impasse, or even a breaking point? We need not be. The end of the Doha Round doesn’t force any country to maintain its trade barriers. There is no law against lowering barriers unilaterally. That would be a great idea, and now would be a good time for it to catch on. But it would also require political courage of a sort we’ve not seen lately—from any country—and greater honesty about the true nature of trade’s benefits.

Clive Crook is a senior editor of The Atlantic.
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