The Free-Trade Paradox

One of the most perplexing trends of our time is that free-trade negotiations are crashing while free trade itself is booming. For more than a decade, attempts by governments to get a global agreement to lower trade barriers have gone nowhere. These trade talks are routinely described as "acrimonious," "gridlocked," and "stagnant." In contrast, international trade is commonly described as "thriving" or "surging," and almost every year, its growth is lauded as "record breaking." It's no surprise that trade negotiators feel as despondent as international traders are cheerful.

The last time official trade negotiators had reason to celebrate was in 1994, when 125 nations agreed to a significant drop in trade barriers and the creation of a new institution charged with supervising and liberalizing international trade, the World Trade Organization (WTO). Since then, efforts to liberalize global trade through negotiations have stalled. In many countries, free trade agreements are now politically radioactive, with imports routinely blamed for job losses, lower salaries, heightened inequality, and more recently, even poisoned toothpaste and deadly medicines. The domestic politics of trade reforms are inherently skewed against trade deals. While the benefits of freer trade exist as future promises, the costs can be real, tangible, and immediate. And while the benefits of trade liberalization are widely distributed throughout the entire population, the costs are borne by highly concentrated groups. Cutting agricultural tariffs, for example, may benefit society at large by reducing what we pay for the food we eat. But it will immediately reduce the income of farmers, who will therefore have a strong incentive to organize to derail trade deals. The same is true of workers in factories forced to compete against far cheaper imports. These social and political realities go a long way in explaining why enthusiasm for reaching trade agreements has dried up in many countries.

It started in 1999, when the attempt to launch a new round of trade negotiations crashed in Seattle. Those botched meetings are now remembered more for the violent clashes between the police and anti-trade activists than for the fact that negotiators went home without even agreeing to start the negotiations. Ironically, the activists were protesting against a deal that wouldn’t have happened anyway. Two years later, the trade ministers met again in Doha, Qatar, and decided to initiate a new round that, they agreed, would be concluded in four years. It was not to be. That deadline -- and others -- came and went. This past June, after six years of talks, negotiators left the meetings on the Doha Round and denounced each other as uncooperative.

Meanwhile, world trade continued to grow at its usual breakneck pace. In 2006, the volume of global merchandise exports grew 15 percent, while the world economy grew roughly 4 percent. In 2007, the growth in world trade is again expected to outstrip the growth rate of the global economy. This sustained, rapid pace of trade growth has led to a more than fivefold increase in world merchandise exports between 1980 and 2005. An unprecedented number of countries, rich and poor alike, are seeing their overall economic performance boosted by strong export growth.

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