By Mark C. Partridge, Contributing Editor
High oil prices, record food prices, rising inflations, and stagnating growth often lead to protectionism and government intervention. Yet, despite these auspices, negotiations in Geneva have breathed new life into the once-dead Doha Round talks.
Gathering at the World Trade Organization’s headquarters, trade ministers from 30 countries have begun to make inroads; optimism is growing that a global free trade deal is slowly emerging. One minister put the chances of success at better than 50%.
One of the major obstacles has been India, whose trade minister Kamal Nath was on the verge of walking out of the meeting in protest, according to reports. The scene was averted and Delhi has become more cooperative as the U.S. and the European Union have offered concessions on domestic tariffs and an increase in temporary visas.
Most interestingly though, there has been a recognition on the part of the developed nations that developing economies have the right to some form of protection. The most recent plan, which has been given the green light by India, China, Japan, Australia, Brazil, the U.S. and the EU, allows for developing nations to protect some industrial sectors from broad cuts in import tariffs.
The ministers have begun moving towards the idea of lowering subsidy thresholds, but not to the point where they would dramatically affect current regimes. For example, a proposal implies that Chile would shave industrial duties to around 12%, though its rate currently stands at only 6%.
In some ways, these developments represent the good winning over the perfect. Since no one country can accept the total demands of the opposite side, the modus operandi is to slide, rather than leap, towards removing trade barriers. Some free-trade supporters are ruefully and cautiously backing these developments. The Economist for one noted, “These are not vast gains… But they are gains nonetheless.”
However, a larger trend looks to be at hand: Those countries who have been the greatest champions of free market forces are increasingly willing to take steps to accept market intervention.
The starkest examples have been in the U.S. where over the last months, government has become increasingly assertive in its efforts to avoid a catastrophic failure of global markets. The Federal Reserve has stepped in to flood the market with dollars to offset the credit crisis, and saved Bear Sterns for collapse. More recently, Washington has tried to overt the implosion of Fannie Mae and Freddie Mac, putting tax payers on the hook for billions of dollars. There are even forays into the stumbling housing market.
In the main, these actions have not been driven by the more trade-averse Democrats; these moves are led by a Bush Administration that sees itself as the heir of the Reagan-Milton legacy. Free marketers argue for the Darwinian forces of the market to run their course, letting failing institutions fall and new ones rise, thereby creating a new, stronger equilibrium. But standing off the precipice, vertigo sets in and the phrase “too big to fail” is quick to the lips of those in power.
Some will argue that this is a case of desperate times demanding desperate measures. Yet it is during just these times that a regime’s true colors become evident and wider trends emerge. The recognition on the part of the U.S. and the EU—itself a big believer in government intervention—that developing countries should be able to intervene in markets is a notable shift; and it is a shift that has been repeated in their own economies as well.
The era of Thatcher and Reagan was once hailed as the end of the New Deal Era. It could yet be their heirs who make the old deal new again.
