Summer Storms and a Summer Sojourn

Unfortunately the very mention of global trade talks normally results in a glazed expression appearing across people’s faces. The Doha round of talks has been going on for seven years now and despite the headlines, most seem to have been resigned to their resulting in an impasse and with all the probability of final failure.
 
Well, such failure has now finally occurred in Geneva where the talks have failed on the basis of and can only be summed up as national greed and protectionism.
 
Actually I suspect the key issue will finally have been found to be the lack of any statesmanlike leadership from the key member nations – as local ‘pork barrel’ issues and the nerves of wavering electorates probably had a greater influence. In the US we now have effectively (or ineffectively in his case) a lame duck president and the forthcoming elections in India will no doubt have been a concern to their representatives. Obviously the Chinese don’t have to suffer any such tiresome inconvenience of having to deal with an opinion from and electorate or its citizens – such is command and control political system.

Given all the other issues around the globe at the moment, people writing about the failure to reach a trade agreement have attracted all the interest for most of watching paint dry: however its relevance and importance cannot and should not be underestimated. My colleague Aparna Ram will be looking at the impact and ramifications of this subject in more detail I believe next week.

The events of the past few months we have described before as a perfect storm with the jet stream confluences of inflation, credit crisis and the end of an economic cycle all converging at the same time. To this torrid maelstrom we can now add the failure of the Doha round, and the impact will be that the intensity of the storm is only likely to be increased.

The effect of not being able to reach an agreement on trade issues at a time of global economic slowdown is extremely concerning. Lower demand will result in excess production and over capacity, and for those countries not willing to face some painful economic adjustment (increased closures and rising unemployment) the result will be to encourage product dumping. Such action in turn will cause an inevitable reaction of populist leaders calling for the raising of protectionist trade barriers. I fear the Chinese economy may be especially exposed as growth levels start to fall and reveal the true amount of overcapacity that has been built up. Already we can hear the background noises in the US from both presidential candidates, and no doubt there will be more extreme comments coming from those local politicians up for the Congressional elections.

Where are the statesmen – and stateswomen?

Summer Sojourn
If someone could do me the very kind favour of ensuring some smooth and peaceful markets for the next fortnight, I would be most grateful. I am off on a short break to the Green Mountains of Vermont. As I mentioned earlier, Aparna will be giving you the benefit of her experience and thoughts for this column for next week.

And finally... encouraging news for “sat-nav” users as I hear a Syrian lorry driver pumped in the details of his intended destination Gibraltar into his faithful little electronic scout. And yes true to form he arrived in Gibraltar – Gibraltar Point, Skegness.

Have a good weekend,
Justin A. Urquhart Stewart
 Director
 Seven Investment Management Limited

Article last updated: Aug 29, 2008

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