Everything you always wanted to know about trade but were afraid to ask

Foreign Affairs has just released a special issue pertaining to all things about multilateral trade -- no subscription required. Contributors include Jagdish Bhagwati, Peter Sutherland, Carla Hills, and Charlene Barshefsky,and William Cline. I recommend the contributions by Arvind Panagariya and C. Fred Bergsten. Panagariya does an excellent job of disentangling the complexities of the agricultural negotiations: The common assertion that agricultural liberalization in rich countries would bring large benefits to LDCs is mistaken. These states -- many of them poor African countries -- benefit from the current regime because they can sell their exports at the high EU prices and buy imports at the low world prices. (Cotton is perhaps the sole exception: U.S. subsidies hurt poor countries because the EU tariff on cotton is zero and therefore its internal price for cotton is the same as the world price.) Gains to those developing countries not in the Cairns Group would accrue principally from their own liberalization. The principle of comparative advantage applies just as much to agriculture as to industry. Moreover, because developing countries do not currently enjoy trade preferences in one another's markets, they stand to gain from access there. Meanwhile, liberalization in developed countries would principally benefit them. Ending their agricultural subsidies would eliminate not only inefficiencies but also the losses from the spillover of the subsidies to the importing countries. Cutting tariffs will generate benefits for their consumers by lowering prices. And countries with a comparative advantage in agriculture -- mainly developed countries such as the United States, Canada, Australia, and New Zealand as well as the richer developing countries in the Cairns Group such as Brazil, Argentina, Malaysia, and Indonesia -- would benefit from the higher world prices that would follow liberalization in the developed countries. Gains from the removal of subsidies under the Doha Round, moreover, are likely to be much smaller than previously thought. For one thing, negotiable subsidies have never been as large as has been publicized, and they have declined in importance over the years. Today, export subsidies are in the $3 billion to $5 billion range and domestic subsidies subject to negotiations are well below $100 billion. These numbers are not insignificant, but they are much smaller than commonly believed, making tariffs the more serious barrier to agricultural trade. Bergsten's essay provides an autopsy of the underlying political pressures that ail the Doha round: The main problems that undermine the prospects for a successful Doha Round, however, lie outside the negotiations themselves. Three factors stand out: the massive current account imbalances and currency misalignments pushing trade politics in dangerously protectionist directions in both the United States and Europe; the strong and growing antiglobalization sentiments that stalemate virtually every trade debate on both sides of the Atlantic and elsewhere; and the absence of a compelling reason for the political leaders of the chief holdout countries to make the necessary concessions to reach an agreement. Progress on each front is necessary for the Doha negotiators to have a chance of succeeding. [Sure, the Foreign Affairs essays tell you what the elite thinks. But what about average, ordinary, hard-working Americans?--ed.] Well, then, scoot on over to the German Marshall Fund's latest survey results on how Americans feel about trade and poverty reduction. Some of the more interesting results: Despite broad agreement (73%) that freer trade helps to boost prosperity, clear majorities in France (74%), Italy (65%), Germany (59%), and the United States (57%) believe that freer international trade decreases total jobs in their country. In a related question, 37% of European and 46% of American respondents favor protecting domestic jobs by raising tariffs, even if this means higher consumer prices.... Democracy is an important factor in determining public support for helping or trading with poor countries. Overwhelming majorities support providing development assistance (80%) and promoting trade (80%) with poor countries that are democratically run, but with the mention of non-democratic regimes, support for aid and trade drops dramatically to under 45%. Most American (78%) and European (88%) respondents also agree that aid levels should be linked to a country?s efforts to fight poverty and promote democratic governance..... While reducing U.S. and European agricultural subsidies is a make-or-break issue in WTO talks, it does not resonate strongly with respondents in any of the countries polled. When asked about phasing out subsidies to large domestic farms, roughly equal numbers find this a high (34%), a medium (33%), or a low (29%) priority for their government to address. But overall, more people look favorably on providing subsidies to small farms (71%) than approve of subsidizing large farms (50%)?an attitude that contrasts with the current distribution of U.S. and EU subsidies, under which large farms receive the bulk of subsidy payments. Three quarters (74%) of U.S. respondents have a favorable view of providing subsidies to small farms, compared with 55% favorable in the case of large farms. Support for farm subsidies is lowest in Germany: 56% favorable in the case of small farms, dropping to just 32% favorable in the case of large farms. In France, 78% percent of people have a positive view of subsidizing small farms, but this plunges to just 40% who like the idea of subsidizing large farms (while a 59% majority disapprove). Given the French government?s resistance to any further cuts to farm support, this distinction in public opinion is noteworthy. UPDATE: One last article worth reading -- Christina Davis makes the paradoxical argument in the International Herald-Tribune that the prospects for trade liberalization would improve if the Hong Kong meetings failed: Patching over the differences in order to avoid headlines about a negotiation collapse would send the wrong signal. It would allow leaders in France to think that they can coddle the farm sector with exceptions for every special product and still pretend to care about development goals. It would allow leaders in Japan to believe that they can refuse a 100 percent ceiling on agricultural tariffs and still say they are committed to upholding the world trade system. It would allow the United States to continue spending $19 billion annually on its farmers while pointing fingers at other governments who fail to liberalize. Dramatic failure, on the other hand, might finally catch the attention of business lobbies and the public that pay little heed to the interminably long negotiations over the minutiae of trade formulas. The lines of disagreement should be widely publicized. Such failure would highlight the linkage between agricultural liberalization and broader trade liberalization.