Just call it 'two steps forward, one step back' for the global trade talks.

The collapse of the World Trade Organization's trade talks this week without an agreement is a setback, economists contacted by BloggingStocks agreed, but it is not likely likely to prevent international trade from growing in 2009.

The nine-day talks in Geneva -- aimed at completing the Doha Round -- collapsed Tuesday after the United States and the European Union could not reach an agreement with China and India on what constituted acceptable tariffs for food imports, The New York Times reported Wednesday. The U.S. and E.U. say China and India wanted to impose prohibitively high tariffs. China and India counter that they were insisting on safeguard rules to protect their food supplies.

Economist Glen Langan told BloggingStocks the elimination of food import tariffs would have resulted in more-efficient deployment of resources, and, ultimately, lower food prices for consumer around the world, along with increased the increased commerce that trade brings. "The failure of the talks is a real loss for consumers in China, India and in the U.S. and Europe," Langan said. "It will also really hurt low cost food producers in Brazil, Argentina, Australia, New Zealand and South Africa. Ultimately, China and India will have to relent, or the west may begin to complain about free trade conditions for manufacturing and services. That manufacturing free trade policy has been the source of a considerable amount of China's and India's economic growth."

The ever-incisive FT columnist Martin Wolf reminds us that while globalization's prize is plus-sum (everyone gains), as opposed to zero-sum (Country A gains only if Country B loses), it is not perfect sum (there are costs) nor egalitarian sum (everyone gains equally).

The biggest advantage of globalization, in Wolf's view? The spread of prosperity, including a wider distribution of innovation and bigger opportunities for profitable exchange/trade. Also valuable, although not guaranteed, Wolf says, is increased political stability in previously impoverished countries.

Globalization marches on

Further, in the globalization era's first decade, the United States can't do anything to halt the flow of ideas, and the diffusion of knowledge, skills, technology systems, and so forth, Wolf argues. Or at least the United States can't do anything decent to stop globalization.

U.S. Treasury Secretary Henry Paulson, along with European Central Bank President Jean-Claude Trichet, are expected to continue to press Chinese officials to allow faster appreciation of China's currency, the yuan. They plan to do this when they meet in China later this month. Some Washington policy analysts will be arguing that China needs to implement substantial currency reforms at the meeting to fend-off rising protectionist sentiment in the U.S. Congress.

China's currency, the yuan, traded Monday at about 7.45 yuan to the U.S. dollar. China does not allow its currency to freely float (i.e. be determined by market forces) and instead keeps the yuan in an artificially-low, tight, trading-band. Further, although China has agreed to let the yuan float at some point in the future, its efforts to enable the yuan's price to reflect market conditions has been slow - - too slow in the view of the United States and the European Union - - and helped create an artificial competitive advantage versus the two other economic regions.

China's currency will be discussed by Paulson, Trichet and other European officials in China this month and at the third round of the Strategic Economic Dialogue between China and the U.S. in December.

In the weeks ahead, BloggingStocks will take an in-depth look at China's economic expansion, its impact on the global and U.S. economies, and also review a few stocks likely to benefit from China's development.

China's announcement that its economy grew at annualized rate of 11.5% in Q3 has done nothing to quell economists' concerns that its economy is growing too fast for both the betterment of its mainland citizens and international markets/commerce.

China's government points to a "successful" slowing of the economy in Q3 to 11.5% from 11.9%. But the minor GDP drop was not what economists were looking for. Economists would have rather seen a Q3 GDP growth rate of 8% or 9% -- i.e., a 15%-25% drop in the rate of growth as evidence of a slower economy. Further, little in China's Q3 report indicated that the country is correcting macroflaws in the economy -- namely, too much heavy industry, high energy use, and a dependence on export sales, to go along with another serious flaw: domestic underconsumption.

Regarding the latter, China has taken some measures to help its middle class expand, and domestic consumption is rising. But domestic consumption still is not large enough: China said domestic consumption has accounted for about 37% of economic gains so far in 2007, down from 39% in 2006. In other words, China is still not at a point where consumer spending can support its economy, and also stimulate growth in other countries through the purchase of foreign goods and services.

As CNBC hosted a presidential debate targeting the business audience, the issue of protectionism, or the economic policy of restraining trade between nations, was raised in a number of ways: Why do we have trade deficits? Why do both heads of a household need to work versus one? Why do people have to work so many more hours to live at the same standard of living as their parents? Why is the U.S. dollar weak? This is a debate that will only intensify as the Republicans and Democrats pick their candidates to face-off against each other.

Utilizing protectionism as the political hot button for a presidential campaign always carries the risk of unintended consequences. A candidate could actually convince the American people that protectionism could work, as the merits of globalization can often be hard to communicate and are often only understood after having experienced the economic limitations of protected borders.

The irony of CNBC's debate is that it was hosted in Michigan. This is the U.S. state which has stuck most closely to strong unionization and attempts to limit competition, and has also registered some of the weakest economic growth in the U.S. since the shift from a manufacturing to a service economy began some twenty-five years ago.

Senator John McCain brought up the Smoot Hawley Tariff Act which led to the Great Depression and World War II during the debate. Closed borders equal closed minds which translates into some bad economic times. The temptation of protectionism is one that must be avoided.