Termites in the Trading System by Jagdish Bhagwati
As the world economy integrates more tightly with every passing week, the global trading system becomes more and more critical to a future of prosperity. That system was developed essentially in the waning days of World War II. The victors, or at least the democratic ones, realized that the beggar-thy-neighbor trade policies of the 1930’s—initiated by the passage of the Smoot-Hawley tariff in the United States—had been a disaster, both economically and geopolitically. It had deepened the Great Depression and helped to bring about the most destructive war in history. In 1947, resolving not to repeat this mistake, they formed, under American leadership, the General Agreement on Tariffs and Trade (GATT) to negotiate lower tariffs, eliminate non-tariff barriers to trade, and reduce market-distorting export subsidies.
Over the past half-century, in a remarkable series of eight negotiations, these barriers have been greatly reduced or eliminated, with tariffs falling by over 90 percent on average. In 1995, GATT was absorbed into the World Trade Organization (WTO), which currently has 157 member nations and a waiting list of 29 countries. A ninth negotiation has been under way for several years to continue the process begun in 1947.
About the Author
John Steele Gordon writes frequently for COMMENTARY. His own economic history of the United States, An Empire of Wealth, was published in 2004.