SWAN SONG — This week, world leaders hammered another nail in the coffin of global free trade — perhaps the final one for its central institution, the World Trade Organization. At the annual ministerial meeting of the WTO this week, world nations failed to reach agreement on any of the major commercial irritants that have put the very existence of the global trading body at risk. From global overfishing to farm subsidies and the structure of the WTO itself, world nations will walk away from Abu Dhabi with little to show for their days — and many sleepless nights — of negotiations. World leaders did manage to ward off an unexpected total catastrophe, agreeing at the 11th hour to continue prohibiting tariffs on digital transactions, thereby avoiding new fees on countless online business dealings. But the failure to move any new free trade initiatives forward in the face of rising right-wing populism around the world is being regarded as a major blow to the global trading system set up after the (first) Cold War. “Countries are fighting very, very hard just to maintain the status quo when it comes to free trade,” said Kelly Ann Shaw, a WTO negotiator during the Obama administration who also served as senior White House economic aide in the Trump administration. “So, this [meeting] is not a good sign in terms of the future of the WTO.” Stagnation is exactly the outcome that supporters of the global trade body feared. On Wednesday, as negotiators struggled to keep the WTO from slipping into irrelevancy, Director General Ngozi Okonjo-Iweala warned the very legitimacy of the rules-based world trading system is at risk. “The biggest issue at stake is the system itself,” she warned in a speech to business officials. “We are at an inflection point. Will we continue to have a reasonably open, integrated and global economy, or will we move toward an increasingly fragmented and divided one?” The answer — at least for now — appears to be the latter. Before the meetings, world nations had hoped to at least reach a deal to curb global overfishing, with one diplomat telling POLITICO failure on that issue would be a “tragedy.” They had also hoped to reach a deal on farm subsidies, and some (non-U.S.) nations were pushing for a deal to reestablish the WTO’s dispute settlement mechanism that has been defunct since Washington put a blockade on new judges back in 2019. They’ll jet out of Abu Dhabi with none of those issues resolved. And there’s plenty of blame to go around. Western nations lay most culpability at the feet of India, which derailed multiple issue negotiations by insisting that agricultural stockpiling programs — which buy food at above-market prices — would be accepted by other nations before they agreed on any other issues. One Western negotiator called India’s demands “deplorable” to Reuters. But India isn’t the only nation jealously guarding a protectionist policy. Almost every nation has a nationalistic economic policy — or a few — that they want to preserve in spite of WTO rules, which generally prohibit nations from favoring domestic firms over foreign competition. The U.S. has Biden’s Inflation Reduction Act and its America-first tax credits for clean energy factories. The EU has plans for tariffs on high-carbon goods, and China has a litany of industrial subsidies that have powered its economic success story, but would be prohibited in more developed nations. “There’s a broad trend of countries looking to embrace a greater focus on their domestic economies at the expense of trade,” said Peter Harrell, the former senior director for international economics on Biden’s National Security Council. “Because the agriculture issues were on the table, India’s ag stockpiling program was front and center, but lots of other countries have been embracing protectionist measures as well.” Policies like those were hard enough to abandon 25 years ago when global liberalism was ascendent and the WTO was being set up. But now, with populists in the U.S., EU and elsewhere ready to slam any international cooperation as a globalist sellout, getting nations to unravel nationalistic policies has become harder than ever. “Clearly the politics of opening markets has gotten quite challenging around the world over the past 5 or 6 years and I don’t see evidence that is likely to change over the next few,” said Harrell. “The fact that we are in this global political climate that is more and more skeptical of opening markets meant it was always going to be extremely challenging for [the WTO meetings] to yield substantial accomplishments.” If that political climate continues, trade veterans in both parties expect that the WTO will continue its yearslong slide into irrelevancy, and international commerce will be determined more by might-makes-right than comparative advantage. But that’s a big if. This year’s elections — in the U.S. and elsewhere — will have a big influence on what’s to come. “If Biden is re-elected, he would like a rules-based order, but an order in which the rules allow more industrial subsidies for things like green energy and whatnot,” said Harrell. “Whereas, I think if Trump comes back, you will very clearly see a desire out of Washington to promote not only a more protectionist set of policies writ large, but a more power-based negotiating dynamic.” But it’s not just the U.S., he added. “Look at Europe: Germany’s got elections, France has elections. Whether they will want to update rules or whether they will simply seek their own kind of power-dynamic negotiations, I think will depend on the outcomes of those elections as well.” Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com. Or contact tonight’s authors at gbade@politico.com or on X (formerly known as Twitter) at @GavinBade.
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