July 30, 2008 | posted by Michael Baxter in International Trade | comments (0) |

Trade: it’s the lifeblood of the global economy. Only through trade can we reduce poverty. Yet listen to politicians, with their own interests, and you would imagine trade is the cause of all our ills.

And now, after seven years of talks, and talks about talks, and recrimination, and threats, and cajoling, and statements along the lines of “it is essential we reach agreement”, the trade talks finally collapsed in Geneva yesterday.

It doesn’t mean the Doha round is dead – but it has certainly suffered a nasty wound.

And once again we hear recrimination and blame and disbelief, and yet we also hear others refusing to cast any blame at all.

The EU Trade Commissioner Peter Mandelson said the collapse of the talks was “heartbreaking.”

China talked about “selfish and short-sighted behaviour” from the wealthier countries.

Yet, China also said we should “learn a lesson” from the failure.

India’s envoy to the talks, Ujal Singh Bhatia, said: “We can’t give up.”

Ultimately it came down to this. Developing countries want to be able to afford a greater level of protection for their farmers than the developed world would agree to.

Many expressed incredulity that the talks should fail just because of this one issue.

But in the US, as the economy totters on the brink of recession, many have started to look abroad and blame others for their crisis. They cling to the view that somehow trade is bad for jobs. That, despite the fact that trade is what has made the US so rich in the first place.

In Europe, French President Nicholas Sarkozy demand an urgent meeting with Mr Mandelson because he believed Tony Blair’s good friend, and arch supporter of free trade, was giving away too much.

And how can you answer that? The trade talks collapsed because the West would not agree to the developing world’s demands, and yet representatives of the West were being hammered for offering too much.

China, India, Brazil and Russia have clout these days. They no longer just roll over and accept what the wealthier nations tell them. And they are exercising that clout.

Yet in the West we see their economic growth as a sign they can no longer justify protection of their industries.

It is tempting to conclude that no one is right, and no one is wrong.

Besides, no one really expected the Geneva talks to bear fruit anyway – this was always a long shot.

Maybe the answer is to be less ambitious.

Yet, the prize for getting this right is huge. Most parties at the talks understand this, the problem is the electorate at home.

We keep hearing in the media how we should buy local, as if importing goods from a country that produces them more cheaply is somehow a bad thing.

Economic text books are full of reasons why trade is a good thing. And in some way we understand this implicitly. There is even a theory that Homo sapiens survived over Neanderthals because we traded, and they didn’t.

And yet we cling to the mistaken belief that tariffs and trade barriers help us preserve wealth. They don’t – not in the long run. Trade helps us focus on what we are good at.

The problem is not really with politicians, it is with us, as we cling to notions that, if implemented, could throw back economic development by years, and the politicians, anxious to win votes at home, get sucked into the melee.

The Smoot-Hawley Tariff Act, passed in 1930, was a previous attempt by the US to try and cope with tough economic conditions. The Act put tariffs on over 20,000 goods imported from abroad, and many argue it prolonged the depression for years.

The single biggest danger which lies in the current economic crisis is that we overreact, and there’s a backlash against trade.