Firstly, when it comes to facing parliaments and publics, it’s never a good time to liberalise. That is why the trade negotiators spend so much time talking about phasing and adjustment.
Secondly, the global financial crisis (GFC) has itself exposed the absurdity of many of the protectionist arguments.
The reason many countries are now in strife is precisely because trade has collapsed. Financial jiggery-pokery allowed absurdly bad US risks to be ‘laundered’ to the rest of the world. In a situation where no-one then knew where the skeletons were buried, finance dried up. And because finance greases the wheels of trade, trade dried up.
Never has the dependence of prosperity on trade been more graphically demonstrated. Of course, never has the dependence of prosperity on finance also been more graphically demonstrated. But then far more people work in trade-related fields than in finance. It has been the trade link that has really spread the bad news.
So never have claims to restrict trade further seemed more absurd. Here in Australia, the economy is defying expectations because China is doing so well, and we sell a lot of coal and iron ore to China. In this context, calls by unions to boycott cheap Chinese steel on local construction sites is breathtaking in its stupidity, and can be seen to be so.
So the point is, in the face of the GFC, governments have the best opportunity they have ever had to expose this stupidity.
Some of us have thought for quite some time that one of the big problems with the Doha Round is that governments have not done enough selling of the benefits domestically. The GFC has reminded everyone of what is at stake. There is some evidence of success in containing protectionism. The latest WTO assessment is that there has been ‘further slippage’ toward protectionism, but that the use of ‘high intensity’ trade-restricting measures remains ‘contained overall, albeit with difficulties‘.
Governments have a golden opportunity to use the real lessons from the GFC not just to contain protectionism, but to finally deliver a Doha Round. And the key is not what they do in Geneva, but what they say at home.
It is true that trade improves the well beings of all trading nations. It is also true that when an economic hard time or crisis hits, the pressure becomes higher to sacrifice trade for domestic political purposes. So Jagdish Bhagwati has a point to make.
It, however, does not mean that it is less important for world leaders to make greater efforts to bring the Doha round to a successful conclusion. They need to show true and greater and stronger leadership, especially in this harder economic environment. Although politically less popular, improved international trade is good for more speedy recovery from the crisis.
What puzzles me is why trade has been affected much more severely by the financial and economic crisis. Trade in some quarters in some countries declined by 40 or even 50 per cent. Surely their economies would not have fallen by that much in those quarters.
Dee has argued the role of finance. Maybe that is the case that finance plays a greater role in international trade than in domestic trade, so when finance becomes difficult, international trade is hit harder.
I would appreciate that someone can explain the relationships between finance and trade, both external and internal.