The multilateral trading system as envisioned by the World Trade Organisation (WTO) now faces more uncertainty than ever before. The Doha Round of multilateral trade negotiation launched in 2001 has moved from lasting progress to likely permanent failure after more than a decade and half of efforts to bring it to a conclusion. It is now going nowhere and calls are there to terminate the negotiation process.
The failure of the Doha Round clearly demonstrates the failure of political leadership to engage constructively with multilateral trading process. While public pronouncements from political leaders, especially from G20 countries, have always been encouraging free and open trade highlighting its benefits, the follow through has always been not only incomplete but in many instances also negating those public pronouncements by many of the member countries. Furthermore, instead of focusing on the benefits of further trade liberalisation, in particular going beyond trade liberalisation in manufactures, the issues such as trade liberalisation in agriculture has been highly politicised. Many member countries came up with diverse expectations making the process very complex. But the current stalemate surrounding the Doha Round does create uncertainty about the future of the World Trade Organisation (WTO) and, by implication, about the future of the multilateral trading system.
The global economy has moved from the Global Financial Crisis (GFC) to an economic growth crisis which has been lingering on for now close to a decade. The context of the current crisis is very different from what we experienced in the 1970s or the very early 1980s. However, policy responses now is marked by monetary and fiscal policies to manage the current economic crisis and these were completely absent during the 1920s and early 1930s. But under the current dominant economic policy paradigm (i.e. neo-liberalism) pursued since the early 1980s, an increased reliance has been put on monetary policy with very limited fiscal policy measures. As a consequence what makes the current crisis different from apparently similar situation in the past are developed economies' adoption of deflationary domestic economic policies which incorporate, among other things, restrictive monetary and fiscal measures. It can now be argued that these policies are the major causes of the current economic crisis manifesting in very slow growth to no-growth situation.
Along with growth crisis, we are also witnessing a slowdown in world trade flows. The current global economic crisis has created a very fertile ground for economic isolationist tendencies to sprout. We are also witnessing a growing trend of protectionism spreading around in developed economies. The current global economic climate definitely foster to placate those most affected by the current economic crisis and to blame trade and to protect the domestic market from international competition as the solution. This by implication provoked a drive towards a growing sentiment against free flows of goods and services which leads to nurturing strong sentiment against globalisation or more precisely to go for de-globalisation. Increased economic interdependence, the hallmark of the globalisation process, has been driven by a combination of factors which has contributed to global economic integration through trade, finance and migration. Underlying the globalisation issue is to make a distinction between cyclical and secular trends. It is definitely a combination of the both which are contributing to the crisis.
This anti-trade (by implication anti-globalisation) sentiment is manifested in the rise of populist far-right extremist political leaders with clearly racist and fascistic tendencies to advance their political agenda with very simplistic solutions with populist slogans to capture state power as happened in the 1920s and 1930s in countries such as Italy and Germany. It has already happened in the USA and many European countries are now confronted with the far-right extremist political parties' drive to capture state power with anti-trade and anti-immigrant slogans without being able to put forward any coherent positive economic programme to address the current economic crisis. Rather they are emboldened by the success of Trump in the USA. In essence, what we are witnessing is the rise of the white supremacist forces and their drive to capture state power in European countries with populist slogans against trade and immigration.
How have we landed in this situation? The relative decline of economic and political power of the West in general and the USA in particular and the rise of Asia and China in particular have put severe strains on the existing global order dominated by the USA as the principal hegemon since the end of the World War II. Furthermore, since the Global Financial Crisis the USA and European Union countries have been faced with rising unemployment and economic stagnation. Over the last 30 years the USA and European countries like Germany and France have experienced rising income and wealth inequality which further added to compound the crisis. All these factors are now playing into the hands of far-right extremist political parties in Europe and the USA who are raising populist slogans to remedy the situation with anti-trade, anti-globalisation and anti- immigrant policies. They are offering very simple solutions to rather very complex problems. There are sound reasons to believe that their suggested solutions, if implemented, will further aggravate the current economic crisis.
Over the last decade, while the USA has been running current account deficits resulting from consumption outstripping national output, countries like China, Japan and Germany are running current account surplus. This has caused political tension between the USA and China in particular. However, we must recall that the USA has been running current account deficits for a very long time, predating the rise of China as a major economic power, making it the single largest debtor country in the world. Now President Trump has come up with a very simple solution to deal with a multilateral trade problem with a bilateral solution: slap a 35 per cent tariff on all imports from China and adopt a bizarre policy to stem the flow of immigrants - build a wall across the USA- Mexico border.
But one must not underestimate what Trump is planning to do. He is not so much a populist but an authoritarian bigot. Under his presidency the USA is now slowly but surely veering towards a fascistic future. He himself is a very dangerous man surrounded by equally or even more dangerous men like Bannon, Spicer, Kushner and their likes. They are a tip of the iceberg of a government that envisions a fascistic state for the future. If his policies are implemented, a trade war is the outcome which will completely disrupt the multilateral trading system. Even far more ominous is Trump may even trigger actual wars, not just trade wars. We are also witnessing a growing tendency among politicians in many other countries advocating mercantilist trade regimes where exports are good, imports are bad. They are also focused on keeping jobs at home instead of making informed case for free trade which will benefit all trading nations by stimulating economic growth and employment.
Open trade has always played a key role in the economic growth of not only developed economies but also developing economies like Bangladesh. This has lifted millions of people out of abject poverty since the end of the World War II and in particular since the 1990s which coincided with the period we describe as globalisation. Bangladesh, along with a large number of developing countries, has enormously benefited from this globalisation process which, in turn, helped in reducing the level of poverty. This is a morally desirable outcome and is very hard to dispute. The role of trade based on specialisation (i.e., comparative advantage) as a source of economic growth and national income has been widely accepted by economists for a long time. Trade fosters world peace and that is also a forceful argument for free and open trade. The origin of post-war European integration was rooted in conflict avoidance and a quest for peace but that aspect of economic cooperation is quite often overlooked in public discourse. The multilateral trading system under the auspices of the WTO has been successful in creating a non-discriminatory trading system. This creates an environment of mutually beneficial interdependence which helps conflict avoidance. Only a multilateral trading arrangement offers the best hope for economic progress and world peace.
The writer is an independent economic and political analyst.
© 2017 - All Rights with The Financial Express