In the dying hours of the G20 summit, US President Barack Obama backed a new round of free trade talks with a view to putting a bill before the US Congress next year.
What persuaded him? Was it a chat with British Prime Minister David Cameron and German Chancellor Angela Merkel? The pair lobbied hard throughout the summit to revive the Doha round of talks on lowering protectionist barriers.
Or was it a collective desire on the part of all the G20 leaders to deflect criticism over their almost total lack of agreement on important subjects like the prospect of a currency war?
Perhaps it was the forceful editorial in the Wall Street Journal a day before the summit urging Obama to smash trade barriers to drive growth and solve the problems of competitive currency devaluations and global imbalances between rich and poor.
Obama’s last-minute support appeared to wrong-foot the new top-table countries China and Brazil, which up to that moment had spent most of their time berating Washington for the US Federal Reserve’s decision to switch on the printing presses and inject US$600 billion into the US economy. If you would believe Cameron, Merkel and the Rupert Murdoch-owned Journal, free trade is a panacea for all the world’s ills. Not only does it give African and other poor nations access to European markets, they say, it also allows capital to flow in the direction where it will be used most efficiently. So Western countries will invest in poor countries where there are readily available pools of cheap labor and resources — not to exploit them, but to raise their living standards.
Cameron and Merkel often point to the example of South Korea — how it transformed itself over a mere 30 years into a rich nation, almost all through “free” trading with the rest of the world. That same could happen in Africa, south and central America, former Soviet bloc countries and neglected parts of Asia, they say.
Obama’s overnight switch of tactics was designed to leave countries that artificially depressed their currency (China) and those that imposed capital controls (Brazil) flapping to find a coherent argument against the logic of globalization.
It is another depressingly short-term tactic that lacks strategic sense, unless we consider the US president has allowed himself to be captured by the interests of big business and those countries, including our own in the West, with an ever growing need for cheaper raw materials and virgin markets. Let’s face it: This is what they mean by free trade.
Obama will, no doubt, have listened to those who say protectionism awaits those who block globalization.
It’s true that China heavily restricts access to its markets to protect important industries and employment. There are few opportunities for Western, or even other Asian, businesses in the fast growing cities of China’s prosperous south and east. A minority stake or partnership is as much as most can expect.
While markets are opening, witness the British supermarket Tesco’s multibillion-dollar investment in China, the pace of which is painfully slow.
Cameron said without progress on lowering trade barriers the situation would reverse, with terrible consequences for everyone. Once Beijing sees the benefits of free trade, it will come to the Doha talks with a more open mind, or at least a weaker argument against lowering some of its own barriers.
Germany is all in favor now that its powerhouse economy has driven down wages to a point where it is a super-competitive exporter with much to gain from lower barriers on manufactured goods. The British also see trade as a route out of the crisis, though more on the services side. (It is noteworthy that Cameron -emphasized the export potential of the creative industries in his China and G20 speeches last week.)
Even South African President Jacob Zuma has converted to the cause. As Cameron’s new best friend, they lobbied at Seoul for a free trade area for Africa.
Yet there is little reason to accept this kind of turbocharged capitalism if you are poor or have to defend a welfare state that needs time to undergo reform.
In the latter category, the French are classic objectors. Like most Western countries France has adopted “free trade” policies when they disproportionately benefit. It knows that while some of its manufacturing is world-class, much of it is woefully inefficient compared to rivals in Asia.
When unemployment is high and looks like it will remain that way, the benefits of building Chinese cars in Lyon for Chinese companies will not look so great compared to the havoc it could wreak, wiping out big names like Renault and Peugeot Citroen with unmatchable levels of investment.
The Anglo-German argument has little sympathy for Western nations unable to afford welfare provision or maintain jobs in a globalized world. They must cut wages, as the Germans have, or cut welfare — the preferred British route.
The argument that the poor will gain is also flawed. War on Want, among other anti-poverty campaign groups, has consistently argued that free trade is a misnomer for rampant pillaging of third world assets.
There was a campaign to gather developing nations together to fight the West and the big mining companies, manufacturers and banks that wanted a bigger slice of their cake.
However, today the world is fractured again. China and Brazil have little in common with their neighbors, which fear them as much as they do the West. In Africa, Zuma wants free trade because he thinks South Africa is in pole position to dominate the region economically, which means politically too.
For Zuma, like Merkel, free trade is something their countries are poised to exploit, with bigger banks and more sophisticated manufacturers. Faced with a choice of investment from China, Europe and the US, African nations could increasingly turn to a smiling Zuma, especially if a local free trade zone makes South African goods and services cheaper. Britain, with strong South African links, would benefit.
Academic assessments agree that the Doha deal on the table will mostly benefit the world’s richest countries, along with certain export sectors in powerful developing countries.
The World Bank’s analysis shows that 80 percent of gains from the Doha round would go to high-income economies, and that China, Thailand, India, Indonesia, South Africa, Argentina and Brazil would scoop up almost all the rest.
Sub-Saharan nations and Bangladesh figure on the list of losers.
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