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Obama Throws Brics Under the Trade Bus

From the BBC comes word that US and EU officials at yesterday’s understated and low key summit agreed to explore the possibility of a bilateral trade agreement.  Since the US and the EU together account for about half of the world’s GDP, this could be a big deal.

Put this deal together with US proposals to create a new, BRIC-free Asian trade bloc, and the beginnings of a new world order in trade can dimly be seen.  The news can’t be welcome at the World Trade Organization; the WTO, where negotiations on the so-called Doha Round of free trade talks have been stalled for years, looks increasingly irrelevant if these talks go ahead.

For those who have trumpeted the emergence of the BRICs (Brazil, Russia, India, China) and major new power players, this news comes as a bit of a surprise.  The new trade deals seem very much aimed at reducing their power in world trade negotiations.  Under WTO negotiating rules, Brazil, China and India have a lot of power to block global trade liberalization.  (Russia will soon share in that power as it joins the WTO.)  But if the US is negotiating directly with the EU and Japan, the Brazilians, Indians, Russians and Chinese are on the outside looking in.

What the new framework looks like is an effort for the world’s developed countries to proceed to a much deeper level of economic integration among themselves, leaving others free, one supposes, to join an existing system once the rules have been drawn up.

For the Obama administration, the new approach has two advantages.  On the one hand, deals with high wage, tight regulation economies like the EU nations and Japan do not anger American unions the way negotiations with low wage countries do.  At the same time, opening trade talks in which the most obstreperous and obstructive voices aren’t present will allow the administration to make progress on issues ranging from agriculture to intellectual property rights that are currently deadlocked in Doha.  This makes economic sense both in terms of the national interest and in terms of the administration’s interest in raising a billion dollars or more for the 2012 elections.

Free trade purists and advocates for the poor will not like the new pattern.  Via Meadia shares these concerns, but believes that the advantages of deeper liberalization among economies that account for roughly two thirds of world trade (the US, EU, Japan plus other Asia-Pacific countries involved) are great enough to go ahead.

The WTO has turned out to be a good place to lodge existing trade deals, but a poor forum for negotiating new ones.  Finding a way to make end runs around obstructionism makes sense; one hopes that countries like India and Brazil, alarmed at losing influence over the further evolution of the trading order, will reconsider their bargaining stands in the WTO and reduce the need for important negotiations to step outside its framework.

Once again, a United States perceived by the world’s chattering classes to be in terminal decline is reshaping the world.  In the last month the US has turned the tables on China in Asia and shifted the center of gravity in world trade talks to Bric-free forums.  Via Meadia does not know how long it will take before fashionable intellectuals in the US and elsewhere actually notice how the world works, but we await that awakening with interest.

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  • Kenny

    “Via Meadia does not know how long it will take before fashionable intellectuals in the US and elsewhere actually notice how the world works, but we await that awakening with interest.”

    Don’t hold your breath waiting, Mr. Mead.

    Our ‘fashionable intellectuals’ seem to hate the West and America in particuilar, and it is that which blinds them to reality more than their apparent stupidity.

    I’m afraid we’ll have to wait for this generation of self-loathing ‘intellectuals’ to die out before that class can preform respectably again.

    And when I say ‘self-loathing, please understand that I mean loathing for their country and civilization (and often even their gender and race, too). As for themselves, they’re a proud a peacocks.

  • Joseph Laurino

    Do you think it is unwise for the US to further tie itself to two economies(Europe and Japan) which will suffer due to a rapidly depleting and aging population? In my opinion if a new economic bloc is to be created it would be wiser to center it around the Western Hemisphere and Pacific than the sick man of Europe.

  • Luke Lea

    @ WRM-“Free trade purists and advocates for the poor will not like the new pattern. Via Meadia shares these concerns, . .

    These free trade “purists” don’t even understand the theory they advocate. If they did they would have understood why out foolhardy liberalization of trade with a country like China is the tragically destabilizing force that it is. “Purists” who sacrifice the welfare of their own fellow citizens, undermine the economic foundations of their nation, and endanger the peace of the world, all in the pursuit of an abstract ideal — well, how bad does it have to get before a journalist like Mead can plainly see the error of their ways?

  • Jacksonian Libertarian

    The WTO like the UN has been just another ugly failure. For a long time Regional and Bilateral trade agreements have been where all the progress has been getting made.
    Even Obama could no longer stop the passage of the Columbian, South Korean, and Panamanian free trade agreements. Obama is so lame the Asians manipulated him into position between themselves and China, and now the Asians and the EU have forced him into trade negotiations. You know it’s because everyone knows Obama never comes out on top in a negotiation, and the next president is unlikely to be so lame.
    The American Global Trading System is showing great strength with this response to Great Depression 2.0. To go into trade negotiations when the EU and the Euro are breaking up, Japan is going into another down turn, and the American economy is being starved for job creating investment capital by voracious government borrowing, rather than pass protectionist legislation like Smoot-Hawley is just plan smart. Maybe mankind can chalk this one up as a lesson learned.

  • Greg Q

    “Free trade purists … will not like the new pattern”

    Why not? Unless the situation is that the BRICs are pushing for more free trade than the US under Obama is willing to stand, going around them sounds like an excellent idea to me.

    Besides, anything that [is bad for the interests of] the Chinese Princes HAS to be a good thing, no?

  • Nate

    Agree with #2. Why tie yourself to the EU and Japan, which are aging so rapidly? Moreover, many members of the EU haven proven themselves to be dishonest, corrupt, and not very good at following rules either.

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