The effective collapse of the Doha round of trade talks in Cancun in September has left the world trade scene in chaos, with an increase in protectionism likely. Free trade, beloved by economists, has only a modest worldwide political constituency, and severe practical defects in a world of floating exchange rates. And the world is turning toward the worst kind of protectionism. Instead of mere tariffs that are at least quantifiable, regulatable and revenue-producing, the world is adopting subsidies, quotas and non-tariff barriers, all less transparent and all more distorting of trade flows. The current world trade regulation system is thus both dangerous and unsatisfactory.
There is a trade structure that would better suit the world's needs, that would alleviate both the political and economic problems inherent in international trade, but not eliminate them (which would be impossible). Politically, the need is for an initiative similar to that of the Reagan Administration's tax reform of 1986: special interests need to give up their favored tax breaks and trade loopholes, replacing them with a modest general tariff. This would then build a system that satisfies the most important needs of all parties and, by its simplicity and efficiency, comes close to maximizing overall welfare.