Saturday, November 7, 2009

Bhagwati: US Trade Paralysis Means Doha Is Toast

Columbia professor and free trade guru Jagdish Bhagwati has a characteristically excellent op-ed in Today's Times of India.  The entire thing is worth reading, but it's this final passage that deserves the most attention (at least for this blog):
[T]he actual damage to trade is still within bounds, though we must remember that a tsunami starts with a slow surge of the waves. But why has protectionism been contained? I believe that the answer lies in the interdependence today in the world economy as production and world trade have become globalised. There are far too many firms today that depend on world markets. General Electric, Boeing, Caterpillar are among the hundreds of US firms that have actively lobbied to contain US protectionism: they fear that retaliation by other nations will hurt them.

But liberalising trade, i.e. moving forward, is a hard slog. Rarely have democratic nations successfully liberalised during recessions. But we now have an added problem: the virtuous statements on finally closing the Doha Round carry little salience when the biggest rottweiler on the block, the US, is paralysed on trade.

The Democrats in the US Congress, after the last election, are heavily indebted to the labour unions that fear trade. In turn, they straitjacket the president, an eloquent man whose silence on Doha is eloquent instead. Progress on Doha without the US playing a key role to close the deal is impossible. So, the news on Doha is bad.

By contrast, the last Indian election, by freeing the government from reliance on the communists who are generally hostile to liberal reforms - which are often described as "neoliberal" reforms by their critics as that sounds more sinister including trade liberalisation, has made India a potential leader in the fight for Doha. Will the prime minister take the lead and ask his host to join in that great task when he goes to Washington for his state visit later this month?
This, I think, is exactly right (of course, it echoes a lot of what I've been saying for months, so it's hardly surprising that I'd say that!) .  The globalization of supply chains and the modern rules-based international trading system have prevented any doomsday protectionist scenarios from engulfing the world.  But real progress at the multilateral level - which still could reap billions upon billions of dollars in economic benefits, especially for developing countries - is dead in the water until the United States gets in the game.

When will it?

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