According to news reports, the recent meeting of G20 finance ministers was a disaster. US Secretary of the Treasury, Steve Mnuchin, blocked language on free trade that would have reiterated the G20’s commitment to "resist all forms of protectionism", thereby breaking with long-standing G20 and US policy.
These reports may be accurate, but they don’t offer the background and context necessary to understand these developments.
To begin with, G20 platitudes on trade have been reiterated since the G20 took over from the G7 as the informal meeting of the world’s decision makers nearly a decade ago. The G20 has avoided prescriptive language on trade, knowing it to be the domain of another international body, the World Trade Organisation (WTO), which has more or less been unable to expand its "free-trade" mandate since the failed Doha Development Round, which began in 2001.
The G20 paragraphs on free trade (and those of other international bodies such as the G7, the Organisation for Economic Co-operation and Development and Brics) were always understood as a throwaway; a statement of general support for a process that was going nowhere.
With that in mind, it seems strange that this is the issue on which reporters are focusing.
To the extent that the US position on trade is an issue, it’s worth noting that the US has never believed in free trade. As economists such as Dean Baker point out, a key pillar of the international trade regime the US backs is highly protectionist — namely the respect for international monopolistic patents. Huge sections of the US economy, especially the military industrial complex or the internet itself, would not exist without massive protections, and even agricultural commodities that are exported are highly subsidised, forcing countries such as Mexico to import some of their staple produce.
Subsidies in Europe are arguably greater, making it clear that the entire Doha "development" agenda in a trade context is built on a lie — that reducing protections has anything to do with development.
One thing the WTO could do to support developing countries would be to stop rich countries from dumping commodities and undermining producers, something they’ve failed to do in West Africa or in Haiti. In some ways, Mnuchin’s position continues to signal the end of an era, even if just one of hypocrisy.
Since the 1980s, rich countries have used institutions such as the International Monetary Fund (IMF) and the WTO to force trade liberalisation on poor countries while controlling their own markets through subsidies and other mechanisms. Subsidies have allowed countries such the US to develop and keep hold of product design and marketing, the most lucrative activities within manufacturing: Apple’s iPhones and iPads would not exist without the government-led technological developments that the company exploited.
Though many would claim otherwise, the hypocrisy was a feature of the system, not a bug. Subsidies that were used to create jobs or support domestic constituencies often resulted in large surpluses, and forcing others to liberalise meant those surpluses could be sold to foreign markets.
As some medium-sized economies grew and were able to generate their own surpluses, they started calling out the hypocrisy and demanding that their producers have access to markets in rich countries. The US is now admitting forthrightly that it has no intention of opening up its markets further; in fact it may seek to limit imports and support its own manufacturers in more direct ways. That’s not necessarily a bad thing. The US has never practised what it preached.
The upside for developing countries is that the "stick" of adherence to free-market principles is perhaps less of an issue than it was a few weeks ago. As development economists long ago figured out, countries do not adopt free-market policies until they have already developed. There is hardly an exception to this rule, meaning that prematurely joining the WTO or allowing the IMF to unilaterally liberalise a country’s markets are disastrous policies, undercutting the possibility for sustainable development that creates more and better jobs.
The lesson to developing country governments should be clear: countries such as the US developed, and continue to develop, by violating free-trade principles.
Others should base their development strategies on the need to create more and better jobs, ensure social protections for all, and on the need to ensure that development is environmentally sustainable. Trade is part of the development pathway, no doubt. But most countries have a lot of catching up to do before coming close to a level playing field.
• Dossani is the global advocacy co-ordinator for ActionAid International
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