Saturday, January 10, 2009

"Multilateral Free Trade: The Obama Letdown"

Jagdish Bhagwati is disappointed with Obama’s position on multilateral trade, and with his "failure to balance his protectionist appointments with powerful trade proponents that would produce a 'team of rivals'":

There were several reasons why one could be optimistic that Obama would follow a pro-trade policy despite “prudential” protectionist talk on the primaries circuit. But his eloquent silence on key trade issues, and his failure to balance his protectionist appointments with powerful trade proponents that would produce a “team of rivals” require that we abandon these illusions and sound an alarm.

Consider Obama’s support for the multilateral trading system. At the outset, it must be admitted that the Doha Round is on hold, and Obama could not move it forward even if he so desired. A principal problem is that its completion turns critically on the US making further reduction in its distorting agricultural subsidies. But the issue has become even more difficult with the collapse of commodity prices and hence increases in support payments. Besides, history shows that the freeing of trade is nearly impossible to manage in times of macroeconomic crisis.

But Obama (unlike Prime Minister Gordon Brown, whose fulsome support for trade is in strong contrast) missed the opportunity, provided by the G20 affirmation of the importance of trade, to affirm resoundingly that he attaches the highest priority to closing the Doha Round and will work on this urgent task throughout the first year of his Administration.

More important, Obama has missed the bus on the question of preventing a slide back into protectionism. His pronouncements on the auto bailout disregard the lessons of the early 1930s when the Smoot-Hawley tariff was legislated in 1930 and a competitive raising of tariff barriers ensued. We learnt then that tariffs and trade restrictions could indeed increase our national income by diverting a given amount of insufficient world demand to our markets. But then others could do the same to divert our demand to their goods, so that the end result was reduced trade and deepened depression. Far better to keep markets open and to increase aggregate world demand instead. So, the architects of the GATT (merged in 1995 into the WTO) built into it institutionalised obstacles to such a destructive outbreak of mutually harmful trade policies.

But really Jagdish, isn't it a bit too early to judge the guy?

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