Yves here. Jomo has regularly warned that Collective West, particularly US, policies, have been increasing stresses in developing economies, with the real danger of setting off cascading crises. I am now seeing warnings for countries not regularly placed on “at risk” lists. Jomo argues below that Trump’s America First policies are only making a not-good situation worse.
By Jomo Kwame Sundaram, former UN Assistant Secretary General for Economic Development. Originally published at Jomo’s website
Donald Trump’s Make America Great Again (MAGA) appeal captured US mass discontent against globalisation. In recent decades, variations of America First have reflected growing ethnonationalism in the world’s presumptive hegemon.
Deglobalisation?
Trade liberalisation probably peaked at the end of the 20th century with the creation of the multilateral World Trade Organization (WTO), which the West kept outside the UN system.
With deindustrialisation in the North blamed on globalisation, their governments gradually abandoned trade liberalisation, especially after the 2008 global financial crisis.
Free trade mahaguru Jagdish Bhagwati has long complained of the weak commitment to multilateral trade liberalisation. Most recent supposed free trade agreements (FTAs) have been plurilateral or bilateral, undermining multilateralism while promoting non-trade measures.
The new geoeconomics and geopolitics have undermined the rules and norms supporting multilateralism. This has undermined confidence in the rules of the game, encouraging individualistic opportunism and subverting collective action.
Policymaking has become more problematic as it can no longer count on agreed-shared rules and norms, undermining sustained international cooperation. Biased and often inappropriate economic policies and institutions have only made things worse.
Successive Washington administrations’ unilateral changes in policies, rules and conventions have also undermined confidence in US-dominated international economic arrangements, including the Bretton Woods institutions.
Deliberate Contraction
Although recent inflation has been mainly due to supply-side disruptions, Western central banks have imposed contractionary demand-side macroeconomic policies by raising interest rates and pursuing fiscal austerity.
US Federal Reserve interest rate hikes from early 2022 have been unnecessary and inappropriate. Squeezing consumption and investment demand with higher interest rates cannot and does not address supply-side disruptions and contractions.
After earlier ‘quantitative easing’ encouraged much more commercial borrowing, higher Western central bank interest rates were contractionary and regressive. Hence, much of world economic stagnation now is due to Western policies.
Developing countries have long known that international economic institutions and arrangements are biased against them. Believing they have no opportunity for wide-ranging reform, most authorities are resigned to only using available macroeconomic policy space.
Nevertheless, national authorities have become more willing to undertake previously unacceptable measures. For example, several conservative central banks deployed ‘monetary financing’ of government spending to cope with the pandemic, lending directly to government treasuries without market intermediation.
More recently, central banks in Japan, China, and some Southeast Asian countries refused to raise interest rates in concert with the West. Instead, they sought and found new policy space, helping to mitigate contractionary international economic pressures.
Nonetheless, many economists piously urged central banks worldwide to raise interest rates until mid-2024. Meanwhile, policy pressures for fiscal austerity continue, worsening conditions for billions.
Neoliberal?
To secure support for neoliberal reforms from the late 20th century, the Global North promised developing countries greater market access and export opportunities.
However, trade liberalisation has slowly reversed since the World Trade Organization (WTO) creation in 1995. Policy reversals have become more blatant since the 2008 global financial crisis with geopolitically driven sanctions and weaponisation of trade.
But ‘neoliberal’ globalisation was a misnomer, as there was little liberal about it beyond selective trade liberalisation. Instead, FTAs have mainly strengthened and extended property and contract rights, i.e., selectively interpreting and enforcing international law.
Trade liberalisation undermined earlier selective protectionism, which promoted food security and industrialisation in developing countries. Tariffs have also been crucial revenue sources, especially for the poorest countries.
Intellectual Property
Strengthening the rule of law has rarely fostered liberal markets. Even 19th-century economic liberals recognise the inevitable wealth concentration due to selective and partial neoliberalism.
Property rights invariably strengthen monopoly privileges under various pretexts. Global North governments now believe control of technology is key to world dominance. The WTO’s trade-related intellectual property rights (TRIPS) have greatly strengthened IP enforcement.
With IP more lucrative, corporations have less incentive to share or transfer technology. With TRIPS enforced from 1995, technology transfer to developing countries has declined, further undermining development prospects.
The 2001 public health exception to TRIPS could not overcome IP obstacles to ensure affordable COVID-19 tests, protective equipment, vaccines and therapies during the COVID-19 pandemic, even triggering criticisms of ‘vaccine apartheid’.
Weaponising Economics
The West has increasingly deployed economic sanctions, which are illegal without UN Security Council mandates. Meanwhile, access to trade, investment, finance and technology has become increasingly weaponised.
Foreign direct investment was supposed to sustain growth in developing countries. Intensifying Obama-initiated efforts to undermine China, then-President Trump and Japanese Prime Minister Abe Shinzo urged ‘reshoring’, i.e., investing in investors’ own countries instead.
Initial attempts to invest in their own economies instead of China largely failed. However, later efforts to undermine China have been more successful, notably ‘friend-shoring’, which urges companies to invest in politically allied or friendly countries instead.
With more economic stagnation, geopolitical strategic considerations and weaponisation of economic policies, cooperation and institutions, fewer resources are available for growth, equity and sustainability. Thus, the new geopolitics has jeopardised prospects for sustainable development.
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Yanis Varoufakis: “Trade wars are class wars.”
I don’t know if he was quoting someone else, but…
And this: “The WTO’s trade-related intellectual property rights (TRIPS) have greatly strengthened IP enforcement.”
Tell that to the artists of various disciplines and journalists.
It’s the title of Michael Pettis and Matt Klein’s book, but I don’t know if Yanis sees the Germans and the Chinese as the ones perpetuating the ‘war’ like the book does (well, Germany probably!)
Michael Pettis’ tweets/Xes over the last few days have been really good reads (just one of today’s several good threads here).
It did for great big corporate businesses. It was never meant to protect anything for artists and/or journalists.
I would like to care more about this than I do. What I’ve seen for the last 40 years is the use of offshoring US manufacturing to developing countries as a moral imperative to raise the living standards in the developing countries, (a fig leaf designed to hide the destruction of US labor and the middle classes while enriching Wall St.). I’ve watch the destruction of light manufacturing in the Mississippi River Valley and the Ohio River valley.
I really am sorry for those developing countries caught in this backlash. I’m more concerned for US people put out of work and once prosperous US towns crushed.
As for the WTO, Clinton fiddled a lot of rules to get China included in the WTO. He didn’t do that out of the goodness of his heart, imo.
https://www.politico.com/news/2021/12/09/china-wto-20-years-524050
So, yes, I’m sorry for the smaller countries caught up the financial sanctions and weaponizing the dollar. It’s too bad. But…. What happened in the US has been a disaster for the formerly prosperous and financially secure middle and working classes. This is also true in the EU zone.
An aside: if DC area fed employees are freaking out about layoffs in govt maybe it’s because they know there’s not much opportunity in the real economy for good employment. / my 2 cents
I remember the 1999 protests of the WTO. There was a good reason for it.
However, I think I should add, we share the world with people in other countries.
And nobody is against international trade – it’s ancient. But globalization and international trade don’t necessarily mean the same thing.
” But globalization and international trade don’t necessarily mean the same thing.”
Good point. I could add the word “neoliberal”, as in “neoliberal globalization.” Thinking again about the Clinton/Blair start, that’s what they were pushing, imo: Neoliberal Globalization. WEF / WTO trading rules.
All the US and UK and Fr and German leaders following them have followed the same playbook, imo… except T and the UK Brexit vote, whatever you think of that vote.
“As for the WTO, Clinton fiddled a lot of rules to get China included in the WTO…”
This is not correct.
The World Trade Organization changed no rules when China became a permanent member. China however had to agree to stricter rules than other WTO countries to become a member. As to staying within the strict rules set down for joining the WTO, China has always been subject to challenge by any member and China is obliged to abide by WTO rulings. However, challenges to China in the WTO have been relatively few since 2001 in comparison with other major traders.
Right. / ;)
Pat Oliphant was a brilliant observer and chronicler of US Main Street life. (And anyone wanting to understand the history of same would do well to read his newspaper political cartoons.)
From the 1999 series of cartoons, there is first this cartoon:
https://www.gocomics.com/patoliphant/1999/03/01
and then this cartoon:
https://www.gocomics.com/patoliphant/1999/03/10
and finally this cartoon:
https://www.gocomics.com/patoliphant/1999/04/05
But of course Main Street is only the hoi polloi, what could these simple minded people understand? Right? / heh
(Oliphant won several Pulitzer Prizes for his astute cartooning.)
This process has been ongoing for decades as the US chose foreign policy priorities and finance capital over domestic labor — see Judith Stein’s Pivotal Decade for all the gory details …
https://yalebooks.yale.edu/book/9780300171501/pivotal-decade/
My optimistic take is that the debt and trade burdens of being America’s periphery has become so onerous, that a lot more countries will soon do what the Sahel countries have pioneered. They’ll kick out the westerners, nationalize all major economic production, renounce their debts, and sign trade agreements with Russia/China.
Russia does not need “financial reserves”. Their magical, multipurpose shovels, so useful on the battlefield, can be used to produce any amount of gold in an instant.
I am in the market for such a shovel. May come in handy in cabinetmaking.
Foreign currency reserves for Russia were about $610 billion in January 2025. Russia also now has a gold stock of about 2,335 metric tons, and Russia has a persistent balance of payments surplus:
https://www.imf.org/en/Publications/WEO/weo-database/2024/October/weo-report?c=922,&s=NGDP_RPCH,PPPGDP,PPPPC,NID_NGDP,NGSD_NGDP,PCPIPCH,GGXWDG_NGDP,BCA_NGDPD,&sy=2017&ey=2024&ssm=0&scsm=1&scc=0&ssd=1&ssc=0&sic=0&sort=country&ds=.&br=1
October 15, 2024
Russia, 2024
Real GDP, percent change ( 3.6)
GDP, purchasing power parity ( 6,909) *
GDP per capita, ppp ( 47,299)
Investment, percent of GDP ( 25.0)
Savings, percent of GDP ( 27.7)
Inflation rate, percent change ( 7.9)
General government gross debt, percent of GDP ( 19.9)
Current account balance, percent of GDP ( 2.7)
* Billions of ppp dollars.
You forgot to include the fact that Russia has all those natural resources within its borders, exit to Pacific and Arctic Oceans, a printer to issue rubles, and a well educated population and a good industrial infrastructure…
“You forgot to include the fact that Russia has all those natural resources within its borders…”
Yes, and a population that wants to be Russian. Tolstoy explained this in “War and Peace,” and that nationalist sense is there now.
” Tolstoy explained this in “War and Peace,” and that nationalist sense is there now.”
Please explain. / ;)
Well, it is a must read. (As is the only perfect novel ever written – Anna Karenina.)
My uncle read War and Peace every decade or so. He read a lot (born in 1907, no tv). It was the inly book I am aware if that he reread like that
“US Federal Reserve interest rate hikes from early 2022 have been unnecessary and inappropriate. Squeezing consumption and investment demand with higher interest rates cannot and does not address supply-side disruptions and contractions.”
Interest rates cannot stay suppressed forever. Seniors, living off their fixed income investments, were being reduced to ruble in order to help younger people consume. At some point, policy has to come at the expense of the upper class in order to create an environment where the needs of seniors are not pitted against the needs of the younger generations.
This is due to an error in understanding the proper way to provide for seniors, confusing the material needs for entries on a spreadsheet and pretending that goods and services can be transferred across time — it’s illusory, and like all illusions it leads to disastrous consequences.