If ever there was a pointless meeting, the gathering of the World Trade Organization in Seattle scheduled for this week seems to be it. The meeting's stated purpose is to start a new round of trade negotiations, which -- if launched -- might last between three years and eight years (the last one took 7 1/2 years). But world trade doesn't need a new agreement, and the meeting could be a public relations disaster. Hordes of protesters are descending on Seattle, and the main result may be a mountain of misinformation about trade and its side effects.
In this debate, the protesters do not occupy the moral high ground. Trade has been an enormous force for good. Since 1950 the world economy has expanded six-fold to about $30 trillion of output, and trade has grown 14 fold to about $5.5 trillion of exports. Countless countries (starting with Japan) have benefited through higher incomes, better diets and longer life expectancies.
No one contends that trade created these benefits single-handedly. But trade helped drive economic modernization by providing ways (imports, international investment) for countries to acquire new products, technologies and management skills. Nor does anyone say that trade is all good and no bad. There are often nasty side effects: chaotic urbanization, environmental degradation and social tension. Still, gains overshadow losses. According to one study, developing countries with "open" trade policies grew three times as quickly between the mid-1970s and mid-1990s as countries with restrictive policies (the eager traders grew about 6 percent a year; the others, 2 percent).
It's also claimed that poorer countries' gains have come at the expense of richer countries, which have lost well-paying manufacturing jobs to "cheap" imports. This is a misleading exaggeration. Yes, job losses afflict some industries. A few (steel, for instance) have high wages. But most involve low wages and low skills (textiles and apparel, for example) because these are the industries where poorer countries enjoy an advantage.
The notion that trade "drains away" U.S. jobs consistently collides with reality. Despite a rising trade deficit, unemployment now hovers around 4 percent. What mainly determines U.S. unemployment is the health of the domestic economy. The huge trade deficit reflects two factors: First, the U.S. economic boom feeds the demand for imports; and second, other countries want dollars -- the major global currency (this raises the dollar's exchange rate and makes imports cheaper).
And then there are trade's gains. Americans can buy less-expensive imports and export advanced products. About a third of U.S. exports are "capital goods," from computers to tractors. Jobs in these industries are generally well paid. Finally, competition from imports improves the quality and restrains the prices of products made at home. Low inflation prolongs economic expansion.
Well, if trade's so good, why wouldn't another global trade agreement make it better? After all, there's still much protectionism -- in farm products, for example. But a new trade agreement might not matter much.
Once upon a time, the dividing line between "trade barriers" and domestic economic and social policies was clear. To oversimplify a bit: tariffs (taxes on imports) and quotas (limits on imports) were trade barriers; everything else wasn't. Now distinctions have blurred. Europeans say they subsidize farmers to preserve countryside. Although the argument may rationalize protectionism, it's not entirely unreasonable.
The point is that trade issues increasingly infringe upon what people -- in many countries -- have viewed as domestic matters. In the United States, labor unions and environmentalists believe that the WTO should be used to promote humane "labor standards" and strong environmental policies. Countries that didn't abide by the rules might lose trade benefits. Naturally, poorer countries object to this sort of arm-twisting.
Countries may cede some economic sovereignty to the WTO. They -- and this includes the United States -- are less willing to cede political and social sovereignty. As a result, any new agreement might not contain many concessions. Conceivably, it might weaken the WTO by dragging it into areas (labor standards, environmental regulation) where its authority and competence are weak. The more the WTO wanders from trade, the more it risks nationalistic backlashes.
The reason that these problems aren't crippling is that trade liberalization is occurring without a new agreement. Gains from trade now seem so obvious that many poorer countries want to get into the WTO. This requires them to cut tariffs, reduce quotas and, in general, move toward open trade. At present, 32 countries have applied for WTO membership, with China being the largest.
The second factor driving liberalization is the competition for international investment. In 1998 there was $644 billion of cross-border investment (including mergers), estimates the United Nations. Countries increasingly see this as a source of technological vitality and job growth. But with some exceptions (China is one, because it's so big), companies won't go places with a hostile business climate. They want to be able to export and import easily; they want sound banking systems and easy communications; they don't want regulations that favor domestic companies. Many countries -- rich and poor -- are spontaneously discarding rules that restrict competition or discriminate against foreigners to attract investment.
This is a healthier process politically than having change imposed from the top through a WTO agreement. Countries are acting in their own perceived self-interest. It is also -- for the moment -- a lot faster. At best, the spectacle in Seattle may start a process that, in many years, could be helpful. At worst, it may be a dramatic waste of time.