June 1, 2003. New
By DAVID LEONHARDT
WASHINGTON -- When the leaders of rich countries put
on their dark suits and gather, as they are this week
in Évian, France, barriers to world trade often begin
falling. For more than three decades, the United
States, Japan and Western Europe have led a
dismantling of tariffs, quotas and subsidies that
almost all business executives and policy makers
credit for lifting economic growth.
The voices of opposition have tended to come from
those with far less power. In wealthy countries, the
wages of many workers have stagnated in the face of
global competition, and old-line manufacturing
executives have watched their businesses shrivel. In
poorer countries, traditional industries have been
overwhelmed by efficient multinational giants.
But the politics of globalization are subtly shifting,
and the turnabout has helped to slow to a crawl the
integration of the world's economies.
Struggling through a third consecutive year of weak
growth and having already taken the easiest steps
toward trade liberalization, wealthy nations have
become unwilling to make the compromises necessary for
new pacts. At times, they have even erected new
>From the orange groves of Brazil to the rice fields
of Southeast Asia, meanwhile, poorer nations have
become more insistent that the next round of
agreements allow them to benefit equally from
globalization. That argument is pushing the
politically toxic, multibillion-dollar farm subsidies
of Europe and the United States to the center of the
The disagreements have been aggravated by diplomatic
conflicts over the war in Iraq and by measures taken
to fight SARS and terrorism. And many government
officials around the globe have become worried.
"We have been the postwar leader in liberal
democratization, globalization and free trade," said
Douglas J. Holtz-Eakin, the director of the
Congressional Budget Office and a former economic
adviser to President Bush. "To the extent that we
adopt a different posture," he added, the effects will
be "not so hot from an economic point of view."
Sok Siphana, the secretary of state for commerce in
Cambodia, which is trying to gain entrance to the
World Trade Organization, added, "The world better
work harder on trade issues because everything is
Already, the flow of goods and investments across
borders has fallen after a decade of rapid gains.
Exports are likely to account for 18.8 percent of the
world's economic activity this year, down from 20
percent in 2000, according to Global Insight, a
research company based in Waltham, Mass.
The economic summit that begins today in the French
Alps * the first meeting since the war in Iraq between
Mr. Bush and European leaders who opposed it * is the
start of a new effort to revive globalization. It is
the annual meeting of the Group of 8, which includes
Britain, Canada, France, Germany, Italy, Japan, Russia
and the United States.
Beyond the disagreements over Iraq, the United States
and Europe have had a number of clashes over trade.
Europe, for example, opposed genetically modified
foods and criticized steel tariffs and tax benefits
for exporters like Boeing in the United States. The
recent decline in the dollar has also made life
difficult for European companies that had become
accustomed to the effective price edge on their goods
while the dollar was higher.
After the Évian meeting, the next step in the trade
talks, known as the Doha round, will be in Cancún,
Mexico, in September. In Cancún, differences over
agricultural subsidies and drug patents will be more
clearly on display than they are this week, as
negotiators, who have fallen behind schedule,
determine whether they can meet their own deadline of
signing a new pact by 2005.
In the meantime, officials from the United States and
Latin America will continue their fitful discussions
about creating a trade zone for the Western Hemisphere
similar to one that exists in North America.
"All the trade negotiations are in trouble," said
Clyde V. Prestowitz Jr., the president of the Economic
Strategy Institute in Washington and a former trade
negotiator. The steps taken during the last decade
"have been so successful that we've gotten down to the
final, difficult issues."
Bush administration officials take a more positive
view, saying they remain committed free traders
despite their support last year for new steel tariffs
and farm subsidies. Officials cite successes in the
war on terrorism, which they say are removing a major
obstacle to the movement of people and goods, and
recent trade pacts with Chile and Singapore. Those
pacts are part of a strategy that Robert B. Zoellick,
the United States trade representative, calls
competitive liberalization, in which the
administration seeks to maintain free-trade momentum,
even if global talks bog down.
John B. Taylor, the under secretary of the Treasury in
charge of international affairs, said: "You take steps
forward and move back. That's always the case." Over
all, he added, "the trends are good."
But other than the pacts with Chile and Singapore, two
countries that already had relatively open markets,
little tangible progress can be cited by officials. A
big reason for that, economists say, is the
unfulfilled promise of globalization so far.
AFTER years of lowering tariffs, ending quotas and
removing restrictions on investment, many poorer
countries are still struggling. Parts of Asia have not
fully recovered from the financial crisis of the late
1990's. Latin America has flirted with similarly deep
problems in the last two years. And the global slump
has reduced demand for semiconductors, plastic toys
and all goods in between that are made in low-wage
At the same time, China, a country that has kept its
borders largely closed until recently, has prospered,
offering a counterexample to the sheltered economies
of the old Soviet bloc that crumbled.
"Everyone is questioning globalization," said Javier
González Fraga, the former head of Argentina's central
bank and now a professor at Catholic University of
Argentina at Buenos Aires. "The virtuous circle * we
were to import capital goods from the industrialized
nations and they were to buy our agricultural produce
* never happened."
Instead, people like Marcelo Lima say they have
seethed as wealthy countries have built their own
protections against the economic slump, like the new
American farm subsidies. Mr. Lima, a former investment
banker who owns a cattle ranch near Campina Verde, in
southern Brazil, argues that recent trade developments
have hurt Brazil's otherwise prosperous agricultural
"Whenever we invest in research and technology and
become more competitive than American farmers," Mr.
Lima, 41, said, "the United States always slaps new
tariffs on our goods or grants fresh subsidies to
Argentina and Brazil are eager to bolster economic
growth by exporting more beef, corn, orange juice,
soybeans and sugar.
American officials note that government support for
farmers in this country remains smaller than in many
places, especially Europe. But they agree that farm
protections will be at the center of the current round
of both regional and global trade talks and that
answers are not easy.
"I really find it very difficult to see how we'll make
significant progress, unless we can move towards a
substantial reform of agriculture in the Doha agenda,"
Mr. Zoellick, the trade representative, said on
Wednesday, after meeting with Brazilian officials in
The other major issue in the global talks is
intellectual property. Nations that have been ravaged
by AIDS and that lack big pharmaceutical industries
are seeking exemptions to patent protections that
would allow them to afford drugs. Drug companies in
the United States * and, to a lesser extent, other
rich countries * want to ensure that the billions of
dollars they invested in research will be repaid in
The pause in globalization has frustrated even some
people who are working in parts of the American
economy that have been hurt the most by the
integration of world markets. Since 1980, the
manufacturing sector has lost 20 percent of its jobs,
as much of its production has moved to other
Last year, when the high value of the dollar was
giving foreign companies an advantage, the continuing
struggles of the American steel industry led the Bush
administration to impose a new set of tariffs on
imports. Steel executives and workers cheered, but
many other manufacturers began wondering if they were
getting the worst of both worlds: greater competition
as a result of freer trade but higher costs from a new
form of protectionism.
In its tan and blue factory building in Clarksville,
Tenn., rebuilt after a tornado in 1999, Smithfield
Manufacturing has reduced its employment to 32, from
40 a year ago, partly because steel costs have risen 8
percent. Shortly after a recent $8,000 shipment of
parts containing steel arrived from Switzerland, the
company received a bill saying that the $150 it had
paid in import duties was no longer enough. It owed an
"It's pretty tough," said Ron Smithfield, president of
the company, which makes metal parts for cars,
printing presses and other machines. "We're seeing
some extreme stress for companies that are trying to
do the right thing and manufacture in the United
SMITHFIELD'S case is almost literally a textbook
example of how tariffs can make an economy less
productive by giving companies an incentive to act in
ways that are not the most economically efficient.
During a slump, however, those benefits are often
obscured by the many people suffering from the
economic destruction that free markets create.
"Hard times mean protectionism," said Adam S. Posen, a
senior fellow at the Institute for International
Economics in Washington. "You look for scapegoats. You
cut things off."
In part, the slowing of globalization seems to stem
from the lack of political solutions to the problems
of its own making. In the United States, the withering
of manufacturing has created a pool of people who have
been out of work for months or who have had to take
deep pay cuts. Farmers from Western Europe to
Southeast Asia face similar troubles.
In that way, critics say, the pause has been positive.
"We were getting ahead of ourselves," said Thomas I.
Palley, a director at the Open Society Institute,
which was founded by George Soros, the investor who
has often criticized the path of globalization. "A lot
of this stuff is very hard to reverse, so you want to
be very careful."
Those issues are likely to linger. Even if current
trade talks deteriorate further, most economists
expect the pace of globalization to pick up when the
world's economy finally emerges from its slowdown.
"When companies start losing business because
politicians won't talk to each other," Mr. Siphana,
the Cambodia trade minister, said, "they'll say,
`O.K., I think it's time to mend fences.' "