The new world order returns to the 1930s

Once again politics and diplomacy are overshadowing what purports to be an economic summit. There is nothing new in this. Even so, the extent to which the Bosnian crisis has dominated the 21st summit of the Group of Seven is startling. World leaders who assembled in Halifax on Thursday spent virtually their entire first working dinner trying - and failing - to sort out a common position on the gathering crisis in the Balkans.

Their inability to reach agreement over the key issue of how to fund the rapid reaction force in Bosnia may seem something of little consequence to the hard-nosed world of commerce. This, however, would be a serious misreading of the economic dangers that may flow from the increasingly fractious state of relations between the big industrial democracies highlighted by the Bosnian crisis.

There is a common theme to the discord manifest in Halifax: the withdrawal of the United States into an ugly, unilateralist posture.

Once the criticism of the US was that it failed to offer leadership. Now it appears to be actively torpedoing any initiatives that are made by others.

A president at bay to a Republican Congress cannot deliver funding to the rapid reaction force in Bosnia. Under similar pressures, the administration is holding fast to its tough line on trade with Japan: the punitive sanctions on luxury car imports will go ahead unless the Japanese concede.

So much for the new world order: it looks more like an older world order of the 1930s. Beggar-my-neighbour policies of tariff wars and competitive devaluations then led to a retreat to autarchy. Few would doubt that the long period of post-war prosperity was anchored in the commitment to break with those damaging policies. Economic progress cannot take place in a vacuum. The tensions in international relations that have come to the fore in this summit cast a long shadow over prospects for the world economy.