America's Free-Trade Abdication

Jagdish Bhagwati Project Syndicate September 29, 2011

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NEW YORK "“ The indifference and apathy that one finds in Washington from both the Congress and President Barack Obama on the Doha Round of world trade talks, and the alarm and concern expressed by statesmen elsewhere over the languishing negotiations, mark the end of the post-1945 era of American leadership on multilateral free trade.

Evidence of anxiety outside the US has been clear to everyone for almost a year. German Chancellor Angela Merkel and British Prime Minister David Cameron were concerned enough to join with Turkey's President Abdullah Gül and Indonesia's President Susilo Bambang Yudhoyono in appointing Peter Sutherland and me as Co-Chairs of a High-Level Trade Experts Group in November 2010. We held a prestigious Panel at Davos with these leaders in January 2011, where, on the occasion of our Interim Report, we gave full-throated support to concluding Doha. But there was no response from the US government.

In September, former British Prime Minister Gordon Brown, former Spanish Prime Minister Felipe González, and former Mexican President Ernesto Zedillo reminded G-20 leaders that in November 2009, at their first meeting in London, they had expressed "a commitment to "¦conclude the Round in 2010." And, two weeks ago, the UN met again on the Millennium Development Goals (MDGs). Goal 8 is about instruments such as trade and aid, and MDG 8A commits the UN member nations to "[d]evelop further an open, rule-based, predictable, non-discriminatory trading and financial system."

But, while practically every country today has embraced preferential Free Trade Agreements, the recent leader in this proliferation is the US. There, Congress and the president apparently have plenty of time to discuss bilateral FTAs with South Korea, Colombia, and Panama, as well as the regional Trans-Pacific Partnership (TPP), but none for negotiating the non-discriminatory Doha Round, which is languishing in its tenth year of talks.

Indeed, it is notable that, while Obama's State of the Union address in January 2010 at least mentioned Doha, his address in January 2011 did not. Obama confined himself to promoting the pending bilateral agreements with Colombia and other emerging-market countries.

Obama's regrettable retreat from support for the Doha Round is the result of many factors and fallacies. These were highlighted in an "Open Letter to Obama" that I organized and released, over the signatures of nearly 50 of today's most influential trade experts worldwide, urging a presidential shift in policy towards Doha.

America's president is captive to the country's labor unions, who buy the false narrative that trade with poor countries is increasing the ranks of the poor in the US by driving down wages. In fact, however, there is plenty of evidence for the rival narrative that rapid and deep labor-saving technological change is what is putting pressure on wages, and that imports of cheap labor-intensive goods that US workers consume are actually offsetting that distress.

Again, Washington lobbyists have bought into the absurd claim of trade experts such as Fred Bergsten that the gain from Doha, as it stands now, is a paltry $7 billion or so annually. This ignores the far greater losses that a failed Doha Round would entail, for example, by undermining the World Trade Organization's credibility as the principal guarantor of rules-based trade, and by leaving trade liberalization entirely to discriminatory liberalization under preferential bilateral agreements. Again, someone needs to tell Obama that imports create jobs, too, and that his emphasis on promoting US exports alone is bad economics.

Most of all, Obama is badly served on trade by his senior colleagues. Secretary of State Hillary Clinton, for example, was opposed to trade liberalization when she ran against Obama for president, and advocated a "pause" in free-trade negotiations. She also misinterpreted the great economist Paul Samuelson as a protectionist, when he said nothing of the kind. She has never recanted.

Likewise, now that Warren Buffett is considered to be Obama's most trusted economic adviser, it is worth recalling that back in 2003 he produced the astonishing prescription that the best way to reduce the US trade deficit was to allow no more imports than it could finance from its export earnings. An amused and alarmed Samuelson drew my attention to this nutty idea. While Buffett's prescription of higher taxes for America's wealthy is entirely desirable, will Obama realize that a genius in one area may be a dunce in another?

What we need today is for the world's leading statesmen to stop pussyfooting and to unite in nudging Obama towards a successful conclusion of the Doha Round. That alone would provide the counterweight to the forces that pull him in the wrong direction. It is still not too late.

Jagdish Bhagwati is University Professor of Economics and Law at Columbia University and Senior Fellow in International Economics at the Council on Foreign Relations.

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Username Password New registration Forgotten password tcolgan001 06:35 29 Sep 11

Down with free trade! Up with fair trade! Implement import certificates (Buffett’s “nutty” idea):http://en.wikipedia.org/wiki/Import_CertificatesThirty years of so-called “free trade” (codeword for screw the American worker) has produced nothing but trade deficits:http://4.bp.blogspot.com/_pMscxxELHEg/SXu-IBM6k3I/AAAAAAAAEXE/Q2KYO8ce_9Q/s1600-h/TradeDeficitGDP.jpgThe current economic crisis and destruction of our manufacturing base is the result.

pflanagan 07:22 29 Sep 11

If deep labor saving technolgical change is what is putting pressure on wages and not the legions of cheap labour in emerging economies aided and abetted by lax labour and environmental standards and blatant currency manipulation, then why are goods not being manufactured in America. The trade imbalance in the US is causing a myraid of economic and social problems which can longer be ignored or whitewashed with specious arguments such as yours.

VictorFB 07:42 29 Sep 11

Porfessor Bhagwati,

Technological change is rising unemployment, that is true. But it is also clearly true that free trade which means above anything: corporations producing in societies with cheap and without rights laboour, is the major cause of the unemployment in the West. Actually not only in the West but also in Africa and other parts of the world because China itself is already enough to produce most of what the whole world needs.

If you really think that free trade is not making move companies abroad searching cheap and controlled labour, then answert this: why is China, the country that hosts most of the western corporations production abroad, the emerging civilisation in the world? Why is China exporting so so so much? And why is the West suffering from such a high unemployment? Why are we not manufacturing anything anymore?

You really don't connect the facts?

AUTHOR INFO Jagdish Bhagwati Jagdish Bhagwati, Professor of Economics and Law at Columbia University and Senior Fellow in International Economics at the Council on Foreign Relations, was the Co-Chair of the High-Level Trade Experts Group appointed by the British, German, Indonesian, and Turkish governments. MOST READ MOST RECOMMENDED MOST COMMENTED The Great Bank Robbery Nassim Nicholas Taleb and Mark Spitznagel The Price of 9/11 Joseph E. Stiglitz The Economics of Happiness Jeffrey D. Sachs Europe on the Verge of a Political Breakdown Barry Eichengreen How to Prevent a Depression Nouriel Roubini A New World Architecture George Soros Did the Poor Cause the Crisis? Simon Johnson America's Political Class Struggle Jeffrey D. Sachs The Second Great Contraction Kenneth Rogoff No Time for a Trade War Joseph E. Stiglitz How to Prevent a Depression Nouriel Roubini Thinking the Unthinkable in Europe George Soros Europe on the Verge of a Political Breakdown Barry Eichengreen The Fear Factor Roger Farmer The Crisis of Fiscal Imagination Dani Rodrik ADVERTISEMENT PROJECT SYNDICATE

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America's Free-Trade Abdication

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