Allowing Doha trade talks to fail is a mistake, both politically and economically
The commodities market has just experienced a hair-raising "flash crash" sell-off.
Portugal's caretaker Prime Minister, meanwhile, agreed to a European Union bail-out. As if on cue, an austerity-fatigued Greece has been forced to deny (extremely well-sourced) rumours that it wants to quit the eurozone altogether.
History is locked on fast-forward. In terms of economic and financial news-flow, as last week showed, we live in turbo-charged times. On top of the tumultuous events mentioned above, the eyes of the world have also been firmly on Pakistan, of course, as the rolling news channels have sifted and sifted again every scrap of information relating to Osama bin Laden's demise.
With so much happening, it is easy to miss crucial, yet slower-moving, trends taking place beyond the headlines. As such, I'd like to highlight something that I consider to be of truly historical significance. For, behind the scenes, and with increasing certainty now, our system of multi-lateral trade rules is falling to bits and is now on the verge of outright collapse.
Despite the massive importance of this system, and its pivotal role in securing more than 60 years of relative peace and prosperity, few people appear to have noticed and even fewer seem to care.
Pascal Lamy, director-general of the World Trade Organisation (WTO), has just declared that the Doha "round" of trade negotiations is in "serious danger" because developed and developing nations cannot agree on how to reduce duties and other trade barriers on a whole range of goods.
Former US Trade Representative Susan Schwab also says she considers the Doha round "doomed". The EU Trade Commissioner, Karel de Gucht, in addition, insists there is "no reason to be optimistic" and that a "Plan B" should be contemplated.
As such, the WTO's 153 members states are now, for the first time, openly discussing an alternative to the Doha round –which amounts to an over-arching global trade agreement that relies on inter-sectoral trade-offs to keep trade barriers in check. While that sounds complicated, the implications are clear. Below the news radar, the world is currently in the throes of the first failure of a multi-lateral trade negotiation since the 1930s.
Everyone knows about the 1929 Wall Street crash and the Great Depression which followed. The global economy seriously stagnated for a decade – doing much to cause the ensuing global conflict. The 1930s were so bad, though, not due to the crash itself, but because stupid politicians reacted to the panic by erecting misguided trade barriers. Across the world, in response to economic fear, tariffs and quotas were raised.
Yet protectionism is economically disastrous and politically explosive. Throughout history, countless lives have been blighted, and lost, proving that point – lessons seemingly lost on the politicians of today. For only the leaders of the world's largest economies can now save the Doha round, so providing the world with an insurance policy against future protectionism, and all the conflicts and loss of prosperity that brings. Yet they seem united in sticking to their eloquent silence on this most important of economic issues.
It fell to Australia's Foreign Minister last week to tell it as it truly is. The failure of Doha would lead to a further increase in bilateral deals between countries, said Kevin Rudd, "signalling that protectionism among small groups of nations is OK".
Rightly stressing that such deals are divisive, and no substitute for a global pact, Rudd warned that if Doha fails, "we not only miss out on a positive trade outcome, but also be confirming that the era of free trade is coming to an end".
For a long time now, this column has banged on about the need for the leaders of the world's biggest economies – particularly those in the West – to show the courage needed to face down domestic vested interests and make the compromises necessary to secure a trade liberalization agreement among all WTO members.
International trade negotiations are not a news-grabbing subject, but completing the Doha Round is absolutely vital to securing a sustainable and balanced global recovery.
I would argue strongly that the Western world now needs the boost to investment, growth and jobs that Doha would deliver far more than the fast-growing emerging markets. This is an uncomfortable truth that few Western analysts recognize – certainly those analysts who advise our politicians.
The Doha talks were launched in the Qatari capital almost a decade ago, in the aftermath of the 9/11 atrocities. This was supposed to be the "development round", with the West showing "more understanding" towards the rest of the world, dropping its trade barriers, and abandoning "neo-colonial attitudes" so as to spread the wealth a little and hopefully temper the hatred.
The real story of that Doha meeting, though, was that it was the moment China joined the WTO, re-engaging with the global trading system after a long absence. By the time of the Cancun WTO summit in 2003, China and the other big emerging markets had burst onto the global economic scene in a very big way.
As such, they felt strong enough to turn the tables on the West, rejecting the Doha deal on offer and insisting on more access to G7 markets in return for opening up their own.
At the 2005 summit in Hong Kong, the WTO talks foundered again – the emerging giants now even bolder and Western trade diplomats and politicians failing to grasp the speed at which the centre of economic gravity was shifting.
Now here we are, six years later. The world economy has imploded and protectionist sentiments are rising. President Barack Obama came to office with the aim of "doubling US exports over five years". And yet he has woefully neglected the most important prerequisite of that laudable aim, the securing of a global free trade agreement.
The EU and America espouse free trade. Yet between them, these two pivotal economic powers maintain a vast, sprawling web of barriers and subsidies that not only dump agricultural goods on world markets, but also seriously undermine global commerce more broadly.
Yes, the Chinese and Indians also need to make compromises to secure Doha, as do the South Africans and Brazilians. But the West should be leading the charge when it comes to freeing-up world trade – not in the name of charity, "development", or even counter-terrorism, but as the result of rational analysis and naked economic self-interest.
The prosperity of the next generation of Westerners depends on them being able to sell their goods to the mass markets of tomorrow – and that means the countries with which we are currently refusing to do a deal.
That's why allowing Doha to fail is a historic mistake – not only politically, but economically, too.
The US is now claiming that the Doha log-jam is "China's fault".
The Chinese, for their part, remain furious that the US is "debasing the dollar", so undermining the value of America's vast overseas debt.
Tomorrow, around 30 top Chinese officials are travelling to Washington for the annual meeting with their American counter-parts on Sino-US cooperation. Between them, the world's two mightiest economies could lead us to a sunlit upland of open borders and economic cooperation.
Yet absurdly, tragically, the Doha round of trade talks isn't even on the summit agenda.
Liam Halligan is chief economist at Prosperity Capital Management
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