Trade Talks Doomed to Fail

The inconclusive Doha Round will be a big loss for U.S. exporters of goods, services and farm products.

By Andrew C. Schneider, Associate Editor, The Kiplinger Letter

July 5, 2006

Global trade talks are on life support. They won't last beyond next summer. The U.S. and the 148 other members of the World Trade Organization (WTO) aren't ready to quit on the Doha Round of negotiations yet. But even so, an increasingly trade-wary Congress is likely to nix any proposed deal because it would lack substantial trade benefits for American exporters, eliminating any potential political benefit to lawmakers in 2008.

That's too bad for U.S. exporters. They actually have the most to gain from a successful Doha Round. U.S. trade barriers are already among the lowest in the world, so it's really up to other nations to open up their markets to more agricultural products, manufactured goods and services from abroad.

A few U.S. industries currently operating behind high walls of protection, such as sugar, citrus, textiles and apparel, will cheer the failure of the trade negotiations. But for most others, Doha's death will spell lost opportunities abroad. The growth of U.S. farm exports will be hindered as potentially lucrative markets, including the European Union, Japan and India, retain high tariffs on foreign farm products. This will be a particular blow to value-added farm goods such as processed foods, dairy, nuts, fruit juices and wine, as well as beef, poultry, pork and other meats. American rice growers' hopes of cracking open the huge Japanese market are also fading fast.

U.S. manufacturers can kiss good-bye the lucrative zero-tariff accords under discussion with a variety of other countries along the sidelines of the Doha talks. These reciprocal deals had the potential to provide a big lift to exports of chemicals, industrial electronics, prescription drugs, medical equipment and forest products, among other items. Doha's demise will also hamper growth in the U.S. trade surplus in services, which partly offsets the huge deficit in goods. Vendors of a wide array of services—legal, architectural, accounting, engineering, advertising, delivery, environmental, health care, etc.—were looking to Doha as a dam-bursting opportunity in global markets.

Failed talks will also bring scrappier relations between the U.S. and its trading partners. Already, signs are emerging that the ill will generated by Doha's setbacks is leading countries to escalate disputes from the negotiation level to outright conflict. For example, the battle between Washington and Brussels over subsidies for aircraft manufacturers evolved this year from a backroom discussion to a complex wrangle mediated by the WTO. Other nasty trade dispute settlement cases are sure to emerge soon. Look for Brazil to take on the U.S. over soybean subsidies. Other countries will challenge the way the U.S. defines dumping in an attempt to weaken antidumping measures often employed by Washington. If successful, it would hurt American firms that tend to file numerous antidumping suits on goods such as steel, chemicals and textiles.

Finally, creeping protectionism will create new hurdles for U.S. exporters. As efforts to lower global trade barriers fail to yield results, many countries will probably be tempted to move in the other direction, erecting regulatory barriers to trade and foreign investment, bogging down U.S. businesses and trade negotiators. That move wouldn't bring world trade to a screeching halt, since the main motors for global commerce are economic growth and the increasing globalization of business. But it would mean more tit-for-tat obstacles to operating abroad, limiting U.S. companies' options for expansion.

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