2012-10-11

WTO will fall apart

Here's Andy Xie on the rise of protectionism. It wouldn't take much to deep-six the WTO, but it could continue to exist as a powerless organization in the face of rising tariffs and trade disputes.
The End of the WTO's Golden Era
The difficulties in resolving the inequities from globalization through increasing taxes will eventually shift politics to focus on trade directly. The rules for governing multinational activities will become more complicated in future. The barriers against outsourcing will multiply. Import duties may rise. Selective use of anti-dumping cases will be used more frequently to protect existing industries.

The golden era of the WTO system is coming to an end. Indeed, trade disputes could multiply sufficiently to overwhelm the WTO system.

Economists tend to blame the trade protection policies of the Western economies for causing or worsening depressions. The reality is probably more complicated. The labor market has limited capacity to cope with globalization. The political backlash against globalization is inevitable when the later moves too fast.

Trade has grown twice as fast as GDP in the past two decades. This relationship is unlikely to continue. The best scenario is for the two to grow at the same pace. The global economy will probably be stuck around 2 to 2.5 percent. So would trade.

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