The Tragedy of Doha

In a 2005 essay, former U.S. Trade Representative Carla Hills noted:

It is no exaggeration to say that the Doha Round could do more to stimulate the global economy and to alleviate world poverty over the next quarter century than any other policy initiative the 148 WTO member governments could undertake together.

This is why last week's collapse of the Doha world trade negotiations is such a disaster for the global economy and the international developmental agenda.

The experience of America and the world since the end of World War II has been of expanding prosperity in both the developed and underdeveloped worlds. The growth of international trade has made the United States vastly more affluent and has lifted an estimated 375 million people out of extreme poverty since 1985.

Today, while the U.S. unemployment rate is edging up, trade exports have bouyed manufacturers and kept American workers in the employment sector.

I noticed some serious misunderstanding as to the causes and consequences of the collapse of trade among prominent commentators in the blogosphere (here and here). For example, the U.S. is generally not to blame for the failure of the Doha round. The developing nations, especially China and India, flexed their muscles and missed an opportunity to consolidate the current free trade regime, notwithstanding its longstanding flaws in American and European agricultural protection.

That said, as the New York Times reports, the collapse of Doha may signal a shift in world power:

Over the last two decades, China has managed to turn the forces of globalization into the most successful antipoverty project the world has ever seen. So how does one explain the fact that when the latest round of global trade negotiations blew up for good last week, ending seven years of talks to lower tariffs and free up trade around the world, it was China with a hand on the detonator?

The answer has a lot to do with how the world — and China in particular — has changed, and a lot to do with how the Chinese see the world that’s coming. In that world, countries like China and India will have much more clout at the bargaining table because they have much greater economic power than in the past.

It is not that the Chinese think the great era of globalization is over. Far from it. The glistening Beijing of today was built on dollars, yen and Euros earned around the world, and now being lent back to the United States.

But the era in which free trade is organized around rules set in the West — with developing nations following along — definitely appears over, and few are mourning its demise. Even in America, where for years free trade advocates assumed their own country would be the biggest winner, advocates of the system are on the defensive.

This is still incomplete, I would add.

Another way to think about it is that the developing nations, especially India, may not have realized that the U.S. is still in the driver's seat in terms of market power. American negotiators resisted India's demands for agricultural protection. The intransigence in New Delhi may have cost the Indian economy years of growing prosperity, for the price of satisfying domestic farming interests.

But here's how the Financial Times puts it:

The collapse of Doha ... speaks to the failure of both sides to own up to the world as it is. On the side of the rich countries, particularly the US but no less many European nations, there is a refusal to acknowledge that globalisation no longer belongs to the west. In previous trade rounds, the rich nations set the rules and the rest could take it or leave it. No longer.

Equally, the new powers now give the impression – and you see this as much in India as China – that they want to be free riders. They are happy to profit from the rules, but unwilling to support the architecture of the system. Doha, in this respect, saw both sides in blindfolds.

International trade is based on the notion of mutual gains. If parties to negotiations are captive to powerful interests and protectionist policies, further trade expansion cannot take place.

This is the trajedy of Doha.