G8: Why Trade Fell Off the Global Agenda

So far, the G8 is all about getting a Marshall plan for the Arab world, a little juice for Japan, and a dose of sanity for Europe. But what ever happened to that global deal on trade?

It’s not like boosting trade isn’t on everyone’s minds. In a letter to the G8, U.S. Secretary of State Hillary Rodham Clinton and Treasury Secretary Tim Geithner called for G8 nations to help the Arab spring with “trade not aid” and investment instead of assistance. Japan is hoping to tap the G8 for trade deals to boost its sharp drop in exports post-tsunami. And the U.S. is pushing for a quick entry for Russia into the WTO as a way to rev up global growth. But after nearly a decade of the international trade negotiations that launched in 2001, no one at the G8 has so much as peeped about a global trade deal this time around.

In fact, a new report by the governments of the UK, Germany, Turkey, and Indonesia said world trade negotiations (aka the Doha round, named after the Qatari capital where the most recent round of global tariff haggling began) are doomed to failure unless countries reach a final agreement by year-end to scrap barriers on things like agriculture, industrial products, and intellectual property.

Free-trade gurus like Peter Sutherland and Jagdish Bhagwati (who headed up the report) are pointing fingers at the U.S. and China for holding up a deal. They say the short-term sacrifices (in jobs and exports) would be fairly small and painless, while helping to jolt global growth. That sounds like a pretty simple equation. So why aren’t more politicians on board?

First off, the gains of a big free-trade-fest might not be as growthtastic as WTO lovers want to believe. Pankaj Ghemawat, a business professor at the University of Navarra, estimates the global gains of a Doha agreement would only add up to a piddly .1% of global GDP. And in the meantime, leaders around the world would get a lot of heat for the jobs lost to local economies in the hopes of longer-term gains. There’s also the problem of perceptions. People tend to think that their country is doing better if it’s ahead of the pack, even if that leaves all countries around the world, including their own, a little worse off. A Harvard study conducted by Robert Reich found that people would rather see the U.S. economy growing at .2% and Japan growing at .1% than have the U.S. growing at 3% with Japan growing at 4%.

In other words, we’re all happy with our Honda Civic until the next door neighbor gets a Ferrari. No wonder then that, like most economic theories, free trade sounds great on paper but not so hot in practice.