India’s WTO veto marks end of global trade deals

Economic growth

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Deflation Jul13The Cycle of Deflation has taken another lurch forward.  The reason was India’s decision to veto last year’s Bali deal to streamline customs procedures.  Almost certainly, this will prove the dying effort of the World Trade Organisation, which sponsored the proposal.

The blog is particularly sad at this outcome.  It has always believed that free trade provides the best possible basis for improving global living standards.

The problem, of course, is that compromise becomes increasingly difficult as the economic outlook worsens:

Thus WTO’s ‘Doha Round’ began in 2001 in Doha, and has since gone nowhere.

It was hoped in Bali that a small deal, allowing everyone to benefit from easier customs procedures, might restore momentum.  But India refused to agree this without guarantees that it could continue with its food subsidies.

This of course, is an unrelated issue.  But it is very important to the new Modi government, anxious to be seen as champions of the poor.  Thus India’s Trade Minister argued:

We cannot wait endlessly in a state of uncertainty while the WTO engages in an academic debate on the subject of food security. Issues of development and food security are critical to a vast swath of humanity and cannot be sacrificed to mercantilist considerations”.

Other major global trade deals look equally unlikely to deliver real progress:

The reason is simple – politicians are failing to spell out potential benefits and are instead leading from behind.

Thus as the blog warned back in February, protectionism is gaining ground around the world.  As the chart suggests, we have moved through the period of devaluation and have now arrived at the period of competitive devaluation, where everyone tries to out-compete their rivals.

This process began more than a decade ago, when companies and policymakers failed to recognise that demand would inevitably slow as global populations aged, and the Boomers joined the New Old 55+ generation.  Even today, major expansions are underway in many industries, regardless of the fact that demand growth is already very weak.

Once the money is spent, countries will close their borders to protect jobs.  Only then, when too late, will we all look back and wonder what we could have done differently.

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