Doha's Collapse a Dangerous Sign for Global Economic Openness

The Doha round of WTO trade negotiations collapsed over an impasse between developed countries and the developing world, primarily concerning disagreements about agricultural and manufacturing policy. This, coupled with the Nicolas Sarkozy's victory at the European Union treaty negotiations removing the phrase "free and undistorted competition" from the document that was rejected by French and Dutch voters in referenda in the last few years, indicates a troubling trend emerging in the global economic scene. I fear we are entering an Economic Cold War that will ultimately threaten the stability of the international system that has kept the globe free of extensive military conflict since the end of World War II.

The Pax Americana is rapidly coming to an end, and unless the United States takes aggressive action to reverse the present trend, the world is likely to be thrust into another great conflict that will threaten the very system that has created the most prosperous Era in human history. Harvard Professor and Hoover Institute Scholar Niall Ferguson wrote a poignant article concerning this very issue back in 2005 in Foreign Affairs. If you want to know the ultimate consequences of economic closure, I highly recommend reading
Sinking Globalization.

The collapse of the Doha Round proves one thing: global trade liberalization requires unilateral leadership as a necessary precondition to substantive movement from the rest of the world on what have traditionally been sticking point issues. The United States must provide that unilateral leadership. If America is dedicated to preserving the current state of prosperity, both for itself, and for the millions of people who are for the first time in centuries emerging from utter poverty, then it must act immediately to illustrate that it is, and can be, the leader in world economic affairs. This means that the next Farm Bill should be a dramatic and rapid phase out of all agricultural subsidies. By 2015, the U.S. Federal Government should completely have eliminated all of the subsidization of agriculture. In tandem with that, the government must also unilaterally eliminate tariffs on imported manufacturing goods.

In spite of the temporary effects such policies would have on certain segments of the U.S. economy, the action would bolster the economy as a whole, even if none of the rest of the world follows suit. What will occur is that Americans will pay less for imported manufacturing goods, and agricultural prices will more or less remain stable, since the subsidies merely push prices down to a level that is in line with global equilibrium. Some American farming capacity will be diminished to match such an equilibrium at market prices, but this is a small price to pay for the overall effect of better spending the money the government currently spends on agricultural subsidies (perhaps to put toward deficit reduction). The net effect on the economy will be reduced "crowding out," which means a more efficient allocation of resources in the macroeconomy. Perhaps temporarily, those funds could be spent on workforce education programs to help transition displaced workers into a more modernized part of the U.S. economy, fund small business loans for such workers, and aid in more innovative business enterprises.

The future of the American economy, and therefore, American hegemony, is dependent upon our ability, as a country, to remain at the forefront of technological innovation. Attempting to spend scarce resources in order to maintain vestiges of an old economy will ultimately decimate our competitiveness on the world scene, while simultaneously pushing the world closer and closer to major conflict.

Unilateral action on these important trade matters is a precursor to more openness. As the world's largest economy, we are the example. Other countries know that if the laws of the U.S. prevent liberalized trade, then they cannot compete without imposing the same sorts of restrictions. As economic interdependence declines, we (and more importantly, other countries) have fewer motivations to rely on diplomacy to resolve geopolitical disputes. China is highly unlikely to invade Taiwan right now because of the economic repercussions of military intervention by the United States in the Taiwan Straight. Similarly, in spite of the massive political differences the U.S. has with Saudi Arabia, war with that country is a virtual impossibility because of the codependent nature of the trading relationship between us. If we were connected to Iran in a such a fashion, I highly doubt there would be so much posturing on both sides with respect to armed (or worse, nuclear) conflict.

The next President and the next Congress must rid themselves of any provincial motivations to erect trade barriers, or even fail to reduce existing ones, and instead embrace free trade and liberalized international economic policy if we are to prevent the precipitation of a major war with the emerging economic powers of the world, especially in Asia. We cannot wait for Europe or Japan to take the lead. Our credibility as the hegemon rests on our ability to lead on the most important issues to global security, and they all start with economics.