Trump’s trade war might end with a relatively benign settlement in which Germany and China invest in US manufacturing jobs and increase their imports - Germany by growing its domestic demand faster and China by accelerating reforms to boost household spending. But, even if it does, that will not resolve the deeper issues behind the collapse of the Doha round. The non-tariff barriers will continue to spread.
“In providing protection in these forms, governments have demonstrated that WTO rules can no longer ensure compliance with international agreements to reduce domestic barriers,” Bill Carmichael, a former head of Australia’s Industries Assistance Commission, writes.
Carmichael also points to the increased complexity of trade reform with the inclusion of most tradeable goods and services.
“In these new areas the forms of protection are complex and diverse,” he writes. “Many are in non-border forms and are seen, especially by those who oppose their removal, as belonging to domestic policy — beyond the reach of international rules and agreements.”
Nor is any settlement between the US and its trading partners likely to reverse the substitution of multilateral reform with inferior bilateral trade agreements, universally and misleadingly styled “free trade agreements”.
As has been shown to be the case with the Australian-US ‘free-trade’ agreement, when the mercantilist politicians and their trade negotiators are finished, these discriminatory agreements can end up doing more to distort trade than free it.
The Seattle demonstrations revealed a deep popular disenchantment with globalisation and free trade and their disruptive impact especially on less-skilled, unionised employment in the advanced economies.
Even if the US, China and Europe can strike a truce the domestic political battle for free trade will still have to be won.
Unfortunately, there is no shortcut to victory. Australia’s Industries Assistance Commission (IAC) spent more than a decade exposing the economy-wide costs of this country’s import barriers before the Hawke government began demolishing the tariff wall.
But the logic of the commission’s expert analysis and independent, public advice ultimately prevailed.
Realising trade policy and international negotiations would continue to be driven by domestic politics, economists and business leaders urged the Doha participants and, later, the G20 countries to build on Australia’s experience.
Sadly, on neither occasion was the Australian government willing to take up the cause.
Nor, for that matter, has any Australian government shown interest in Carmichael’s suggestion for using the transparent processes of the Productivity Commission (a successor organisation to the IAC) to increase the government’s accountability and reduce the secrecy surrounding the negotiation of Australia’s bilateral trade agreements.
Perhaps President Trump’s trade war will change those attitudes. People were able to shut their eyes to the rising cost of non-tariff barriers but they can hardly ignore Trump’s protectionist rampage.
Alan Mitchell is a former economics editor of the Australian Financial Review