When they look back at us with the knowledge that only the future can bring, tomorrow's generations may well mark 2001 as the year of a new beginning--or the year of an ignominious ending--for a remarkably beneficial time in which world trade raised many boats.
On a number of fronts, the coming year is shaping up as critical to the future of trade. Will the U.S. and Europe engage in an all-out trade war? Will the haves and the have-not countries find a way to cooperate so all benefit? Will the administration of President-elect George W. Bush be shrewd enough to navigate these fast-moving trade waters? Can the U.S. again assert its leadership in this critical arena? The world has laid the groundwork for prosperity through trade over the last 50 years. Can it build on that?
There is a sense--particularly in America--that the cornucopia trade has brought is a given, that great strides forward may not be made from here but the status quo isn't so bad. Why worry?
This reflects a dangerous complacency. The past 50 years saw the tearing down of many trade barriers and great advances in open markets around the world, to be sure. But Federal Reserve Board Chairman Alan Greenspan has reminded us that this period, "in many important respects ... has represented an uneven struggle to repair the close linkages among national economies that existed before the First World War."
Continuing in a speech delivered in Mexico City in November, Greenspan said: "The hostilities bred of war, the substantial disruptions to established trading patterns associated with that conflict, and the subsequent poor economic performance over the next few decades triggered the erection of trade barriers around the world that have taken even longer to dismantle."
Think about that.
Those repairs took most of the 20th Century. "To repeat that error would be a tragic act of foolishness and waste," said Greenspan. Even so, he warned that any economic downturn "runs the risk of reviving mistrust of market-oriented systems. The arguments against the global trading system that emerged first in Seattle and then spread over the past year arguably touched a chord in many people."
Greenspan spoke those prescient words before evidence of slowing growth began to be felt throughout the economy. This only increases the difficulty the new administration will face in negotiating future trade agreements and resolving ongoing disputes.
The world is undergoing rapid change, fueled by technology and the growth of markets. It is a time of uncertainty and anxiety and trade is seen--incorrectly--as the problem rather than the solution.
It doesn't help that the most contentious trade disputes before the World Trade Organization recently have been between the two Goliaths of world trade--the U.S. and the European Union--over bananas, hormone-treated American beef, taxes and, most recently, European subsidies for jumbo jets and American anti-dumping sanctions. So far, the WTO has ruled that the U.S. may collect more than $300 million in sanctions from the Europeans in the banana and beef cases.
Late last year, the EU escalated that conflict by seeking more than $4 billion in sanctions, claiming the U.S. gives its exporters an unfair tax break. This issue will come to a boil later this year when the WTO must decide whether a change in U.S. tax law is enough to resolve the EU complaint.
Under the old tax law, about 6,000 American corporations were able to reduce their taxes by funneling exports of goods made in the U.S. through subsidiary shell companies in offshore tax havens. The WTO ruled in February that that constitutes an illegal export subsidy. The new law allows companies to keep their tax benefits--in fact, it increases the size of the tax break--but eliminates the need to set up offshore subsidiaries.
All of these disputes--bananas, beef, jets, dumping and export taxes are related tit-for-tat skirmishes that must be resolved politically to avoid an all-out trade war. If there is anything encouraging, it is that the U.S. and EU have recently tried to tone down the rhetoric on both sides of the Atlantic. They must recognize if they launch a trade war, the rest of the world will suffer grievously, as it did through much of the 20th Century.
Beyond this crucial relationship, there are hopeful glimmers elsewhere for the first time since the WTO failed to launch a new round of trade talks in Seattle a year ago. Those talks broke down, in part, over the contentious issue of whether the U.S. will--or should--try to impose labor and environmental standards on developing nations, which fear such standards will hurt their ability to compete.
That topic will be the subject of major debate on any trade treaties, whether it is expanding the North American Free Trade Agreement, gaining congressional approval on trade deals with Vietnam and Jordan or completing trade pacts with Chile or Singapore. The issue crosses party lines and means that Bush and his negotiators will have to deal as adroitly with Republicans and Democrats on Capitol Hill as with other nations.
The Asia-Pacific Economic Cooperation (APEC), a regional group of 21 Asian and Pacific nations, agreed in November to push for revival of world trade talks this year. That's another victory for free-traders. But if the U.S. and its new president aren't nimble, these talks, and the wondrous pattern of consistent gains in free trade, could be in jeopardy.:
