Fifteen years ago, it appeared that globalization was the most important trend of our time, and was irreversible. Since then the Doha round of trade talks has been stalled for years and even the modest progress trumpeted last December has been blocked by India, home of a new government supposedly dedicated to the free market. Has the globalization clock, like that on the Bolivian Congress, gone into reverse? And does this have deeper implications for the time-direction of the world economy in general?

The Bolivian Congress clock, for those who missed the story, has since late June rotated in a counter-clockwise direction, thus presumably confusing ordinary Bolivians since the country’s other clocks still work the ordinary way. President Evo Morales, when announcing the change, said that “clockwise” was a Northern Hemispherist construct, since clocks followed their predecessor technology, sundials, the shadow on which rotates clockwise in the Northern Hemisphere and counter-clockwise in the Southern Hemisphere. Thus if Australia had been a leader of world civilization in the thirteenth century, and had come up with the clock first, the world’s clocks would rotate the other way.

Without wishing to dispute the great President’s logic, I would point out that La Paz is only 16 degrees south of the equator and therefore in December the sun is to the south of it, and La Paz sundials rotate the same way as they do in the north. Of course, for much of the year the shadow goes basically straight across – I remember as a child seeing a sundial in the Malaysian highlands, about 3 degrees north of the equator, and wondering why it didn’t work properly (being of British origin, it was marked as for the Home Counties.)

More interesting, Bolivia’s Aymaran and Quechan indigenous people are believed to be the only people in the world who see themselves as facing the past, moving backwards into the future. That, even more than Bolivia’s clock, may be an apt metaphor for the current state of the global economy.

Back in the ’90s, when the Uruguay Round of trade talks was completed at the same time as the North American Frere Trade Agreement was signed, it appeared that globalization was unstoppable, with technological advances combining with trade liberalizations to remove every barrier to the free movement of goods. The only question was whether immigration restrictions would disappear at the same time, allowing for a global single market in both goods and labor.

That did not happen. The first sign that it might not was the violent demonstration against the 1999 WTO meeting. Momentum appeared to have been restored with the start of the Doha round of trade talks following the 9/11 attacks, but those quickly ran into the sand. The 2008 financial crash and economic downturn raised the frequency of modest protectionist actions, but fortunately didn’t lead to an overall rise in protectionism as happened in the 1930s. On the other hand bilateral and a few regional deals showed that politicians at least continued to pay lip service to free trade.

At this point however the momentum in favor of free trade appears to have gone fully into reverse. Two major regional deals, the Trans-Pacific Partnership and the Transatlantic Free Trade Area, appear to have absolutely no momentum behind them, partly because the current U.S. administration is itself protectionist (though many of its permanent officials remain free-traders.) Then last week a minor deal agreed by the WTO last December, mostly in order to have agreed something, was torpedoed by India.

This raises only mild further questions on world trade, but significant ones about the new Indian government of Narendra Modi, who had advertised himself as a free-marketer. Given the feebleness of the government’s June budget, and now this, one begins to suspect that the Modi government will turn out to be not a revival of the admirably reforming 1998-2004 government of Atal Bihari Vajpayee, but merely a modest variant on the depressing Congress party norm that has stultified India for over 60 years.

Then there is Vladimir Putin, on whom the West is rightly imposing sanctions and who in return is threatening measures like preventing European aircraft from flying over Siberia, thus reversing one of the modest benefits of the fall of Communism (I speak from experience: London/Tokyo is a LOT quicker if you can fly over Siberia, and not go round the long way via Anchorage.)

In summary, the progress made in the 1990s towards globalization is reversing. The clocks are indeed running backward from 2000, the apogee of global free trade. We have already returned to about 1989, and will shortly begin our journey backwards through the 1980s. In particular the return of exchange controls, abolished by Britain in 1979 and by France and Italy in 1990, looks only too likely in the next downturn. After all the IMF, admirably committed to free exchange movements in the 1970s and 1980s, as part of its post-2008 surrender to dozy Socialist nostrums in a 2010 paper called capital controls “a legitimate part of the toolkit.”

It seems almost inevitable that overextended emerging markets such as Russia and Brazil will bring back the full panoply of 1940s export controls if and when money tightens and they get in trouble; the only question is how many of the so-called “advanced” economies will follow them. Indeed, if we get another downturn comparable to that of 2008 (which is fairly likely, given the current level of investment mispricing due to crazed monetary policies) then I wouldn’t put long odds against a return to 1930s protectionism. The Bolivian clocks of the international trade system would then have returned 75 years in little more than a decade, proving that if the clock’s hands run backwards, even their speed cannot be relied upon.

This would not simply involve a return to higher tariffs, perhaps those of the Kennedy Round of the 1960s. In themselves, moderately higher tariffs would not be too damaging. The intellectual case for free trade is a good one, but so is the intellectual case for abolishing the income tax and we don’t seem likely to do that anytime soon. Just as tariffs are barriers to the free exchange of goods, and distort markets, so income taxes are barriers to enterprise, and promote inactivity and sub-optimal allocation of human resources.

The nineteenth century Whigs who destroyed British agriculture in order to promote free trade were foolish in many ways, but they never contemplated a system in which incomes would be taxed at 40-50% or more, and they would correctly have regarded such a system as unbalanced and unworkable. They would also have objected violently to a Value Added Tax levied at 20% or more, such as EU countries suffer under – since the VAT is remitted on exports it represents an outright subsidy to foreigners levied on the unfortunate folks at home.

Provided that tariffs rise only modestly, and their proceeds are used to remit other taxes, especially those levied at high marginal rates, and not to expand the state leviathan still further, an increase in tariffs may thus be an appropriate rebalancing between production and consumption.

However such is the preference of today’s governments worldwide for regulation over market forces, even those taking the form of a simple flat rate tax, that the additional protectionism we are facing almost all takes the form of additional regulations and trade barriers, and not simply of higher tariffs. Indeed existing trade protocols protect us against higher direct tariffs, but not against costly protectionist regulation or spurious “anti-dumping” suits that are mere crony capitalist subsidies to major lobbyists.

For example, abolishing the US Eximbank would save money, and reduce the subsidy to a few favored interests such as aircraft manufacturing, at the expense of others such as domestic airlines, but it is most unlikely to happen – too many vested interests will prevent it. The trend is in quite another direction, to forming yet more instruments of politically directed resource allocation, such as the “New Development Bank” to be operated by the BRICS group of badly run emerging markets.

The 1990s “Washington Consensus” among development economists was by no means perfect. For one thing, it was far too tolerant of expanding government, regarding tax rises as the solution to all imbalance problems. Yet it included a healthy commitment to free trade, which we are now abandoning, not in favor of moderately higher tariffs to fund Leviathan, but in favor of a maze of controls and barriers whose cost is hidden but immense. The Aymarans and Quechans facing the past are our superiors; we are advancing not into a past regime but into one worse than we have ever before suffered. The consequences for our prosperity will not be pretty.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)