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The Case for Old-Fashioned Tariff Cuts

Had governments stood still on trade policy over the last three years, the world would be a lot better off than it is now. Today, policymakers could do worse than return to the post-World War II formula of negotiating the reciprocal elimination of tariffs.

WASHINGTON, DC – The “bicycle theory” used to be a metaphor for international trade policy. Just as standing still on a bicycle is not an option – one must keep moving forward or else fall over – so it was said that trade negotiators must engage in successive rounds of liberalization. Otherwise, global openness would gradually succumb to protectionist interests.

I don’t know whether the theory was right. In fact, had governments stood still on trade policy over the last three years, the world would be a lot better off than it is now. Trade is faltering – global volumes are down a remarkable 1.1% over the last 12 months – as inept bikers collide chaotically with one another.

Once competent riders are again in charge, they could do worse than return to the post-World War II formula of negotiating the reciprocal elimination of tariffs. The suggestion sounds old-fashioned. After all, another familiar truism is that “shallow integration” – removing obvious trade barriers such as tariffs and quotas – is largely complete, and that further progress now requires “deep integration,” or mutually agreed rules for regulating the business environment. But that agenda, despite its potential merits, now appears too ambitious. 

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