Will Asia’s push for globalisation be the beacon of light in these dark days of rising protectionism?
It’s a tragic irony that the nation most responsible for shaping the vision of global free trade is the same one intent on destroying it, 70 years later.
Whatever has been exciting you this week, I can lay a safe bet that it was not taking place in Buenos Aires.
As hundreds of trade ministers flew into Argentina from across the world for a World Trade Organisation meeting, marking the 70th anniversary of the creation of the post-World War 2 institutions that began the process of global reconstruction after two massive wars and the 20th century’s worst economic depression, the world’s attention was tuned elsewhere. Such is the indifference or antipathy to any discussion about the huge benefits of global trade liberalisation.
For that tiny band of participants and observers nurturing hopes that the Buenos Aires meeting would bring significant new trade liberalising initiatives, those hopes were unfulfilled, and their disappointments were unheard.
I had nurtured no hopes, but I was disappointed nevertheless. Because this should have been a celebration of all that we have gained from those visionary meetings late in 1947 at the Mount Washington Hotel in Bretton Woods in New Hampshire, where 700 delegates from the 44 Allied nations gathered with a single purpose: from the ashes of three decades that had brought the world to the brink of self-destruction, to mould a culture of cooperation that could restore peace, stability and prosperity worldwide.
This was the meeting that fleshed out the Marshall Plan, and laid the foundations for the International Monetary Fund, the World Bank (then called the International Bank for Reconstruction and Development), and the World Trade Organisation (WTO).
Seventy years on, it is impossible to understate the global benefits reaped from this momentous meeting, and the vision at the heart of it.
And it is catastrophic that its importance has been all but forgotten. There is a tragic irony that the nation most clearly responsible for creating this momentous vision – and the nation that has arguably gained the most from it – is the same nation that today seems intent on demolishing it.
It is fair to admit that despite the wide recognition back in 1947 of the huge harm wrought by the surge in protectionism that followed the Great Depression in the US, the journey towards trade liberalisation was from the very beginning long and laborious. The WTO’s Director General Roberto Azevedo correctly talked in Buenos Aires of “the hard grind of multilateralism”.
From the 44 countries that attended the Mount Washington meeting 70 years ago, just 23 went on to sign up to the General Agreement on Tariffs and Trade (GATT). While the US slashed its tariffs from the strangling levels of the 1930 Smoot Hawley Act, few others at first took similarly ambitious steps away from protection.
But from that high water mark of protection, the “hard grind of multilateralism” forged out of a long and tortured trade liberalising journey from Annecy in France in 1949, to Torquay in the UK, three negotiating rounds in Geneva, Tokyo and finally the Uruguay Round agreement signed in Marrakesh in 1994, has brought unimaginable benefits to the world economy.
From the original 23 GATT signatories, the WTO has today expanded to 164 member economies, with a further 21 queuing to join.
Tariffs have been cut from averages of 60-70 per cent in 1948, to a negligible 2.9 per cent today. Worldwide trade has exploded 250-fold from around US$59 billion a year to over US$15 trillion today. Living standards have risen mightily across the world, with hundreds of millions of people lifted safely away from starvation.
Despite the self-evident and widespread benefits that have arisen from trade liberalisation – with clear evidence that when a country cuts its trade barriers, it is its own consumers that capture most benefit through lower consumer prices, and their own companies that capture competitive advantage because of access to cheap raw materials and input costs – there is a testosterone-laden negotiating chemistry that suggests the opposite.
Trade “concessions” can only be offered if other negotiators make concessions too – even though it is your own consumers that are the main beneficiaries from these “concessions”.
Of course, this perverse inversion of reality is due to a single obvious reason: the beneficiaries of tariff cuts are widely dispersed and have almost no focused political voice, whereas large domestic manufacturers protected by high tariff walls have strong political voices, and powerful incentives to use their well-focused lobbying clout to champion their interests.
The US’s principle anti-WTO Rottweiler – US Trade Representative Robert Lighthizer - knows this reality only too well.
For decades he has fought to defend the interests of expensive US steel manufacturers. His vision, if he has one, is light-years away from the vision of those who met in 1947 in the Mount Washington Hotel. His cause is to advance the interests of (comparatively rich) US producers at whatever cost to the greater economic good.
Contrast this with the WTO Director General Azavedo’s closing comments in Buenos Aires on Wednesday: “Multilateralism does not mean we get what we want. We get what is possible. We have to come knowing that we will need to make compromises. The (WTO) system is not perfect, but it is the best that we have. If we are not improving the lives of the poorest, or giving the smallest the chance to compete, we are not doing our jobs.”
As Lighthizer and his American soul mates push back against such sentiments, and focus on bilateralism in which the muscular US can inevitably exert disproportionate pressure on weaker trading partners, Azevedo’s vision could not be more alien.
Unfortunately, it is the Lighthizer ethos that is today in the ascendant, leaving Azevedo and the WTO whistling in the wind in Buenos Aires. Even their most timid aspirations were left unfulfilled.
An attack on fisheries subsidies was parked into 2019. Initiatives to facilitate investment and encourage small companies to engage in international trade were unresolved. Most troubling, long-overdue efforts to begin forging global trade rules for e-commerce were almost torpedoed by an Indian government seeking protection for its domestic food subsidies.
For anyone still treasuring the 70th anniversary of the Bretton Woods vision, these are dark days, with protectionism threatening to rise, and very little evidence of light over the Buenos Aires horizon.
If there is change, it is coming from Asia, and from China. But that is another day’s story.
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view