The easy explanation for the impasse is the usual one: the political need to protect powerful special interests. From French dairy farmers to Florida sugar growers to Brazilian auto makers, groups that would be hurt by falling trade barriers are threatening retaliation against administrations that make trade concessions and legislatures that approve them. But there's a deeper problem. Economists, long the main advocates of free trade, have been reducing their estimates of the potential benefits of even an aggressive trade deal. As the total benefits from lowering trade barriers in goods diminish, there simply isn't enough added wealth generated to buy support for the deal by such measures as retraining unemployed workers. So the winners in each nation are drowned out by the losers. Consider this: The Doha round was designed from the start to focus on the kinds of trade most important to developing countries, namely farm and industrial goods. Yet a 2005 study by the World Bank, which favors free trade, estimated that complete liberalization of trade in goods would boost income by just $287 billion by 2015. That number is 30% lower than its previous calculation of $413 billion, done in 2003.I hope developing countries are not going to use reports like this as a basis for trade protection and economic isolation. For a real good perspective on the benefits of global trade integration check out Tom Petruno's front-page story on the global economic boom in today's Los Angeles Times. Apparently the current run-up of economic growth around the world looks to be the longest sustained global expansion in over thirty years. Here's a longer quote from Petruno's piece:
The global economy is on a growth streak that is shaping up to be the broadest and strongest expansion in more than three decades. Rising spending and investment by consumers and businesses worldwide are boosting national economies on every continent, pushing down unemployment rates in many countries and lifting business earnings and confidence. Of 60 nations tracked by investment firm Bridgewater Associates, not one is in recession — the first time that has been true since 1969. Yet this is a different kind of boom from any other in the post-World War II era, analysts say. The soaring economies of China, India, Russia, Brazil and other emerging nations increasingly are setting the pace, overshadowing the slower growth of the United States, Europe and Japan, where the benefits of the expansion have eluded many workers. "This is the first recovery where developing economies are playing a dominant role," said James Paulsen, chief strategist at Wells Capital Management in Minneapolis, which manages money for big investors such as pension funds. The trend is being driven by free trade, which has created millions of jobs in emerging nations in recent years, fueling stunning new wealth in those countries. China's meteoric rise has been well-documented, but the boom has spread far and wide to include much of the rest of Asia, as well as Latin America, Eastern Europe and Africa.Certainly, all is not rosy. Growth in the Western industrialized countries has not been phenomenal, although the U.S. economy has had steadily brisk performance as of late, and has been able to continue expanding despite oil price hikes and a slowing housing market. The article speaks of sectoral economic dislocation in the U.S., as the bulk of the gains from trade in recent years may have been captured by the developing economies, making some American workers worse off. With time, however, growth in the newly industrializing economies of the developing world will provide markets for U.S. exports, providing a boost to domestic production and national income.
One more point is of note, which should be a cautionary tale for countries opting for trade protection or nationalization of industry: Look at the record of the winning economies of the developing world -- Brazil, China, India, and South Africa. These economies are model economies for the benefits of world trade integration. Evidence from studies in international economic integration suggests that states that have been more likely to integrate their economies into the world trade and financial system have grown faster and have been more able to reduce domestic inequality in their countries. That's a lesson that Doha resisters in the developing world ought to consider.