As the United States and Europe pursue climate action and national economic goals, developing countries fear that the collapse of the multilateral trading system will undermine their prospects.
CAMBRIDGE – Developing countries are increasingly concerned that the United States will turn its back on the multilateral trade regime. Amid rising geopolitical tensions, policymakers in low- and middle-income countries fear that a break from that regime would make them hostages to great power politics, undermining their economic prospects.
His concerns are not unfounded: US trade policies have changed significantly in recent years. What seemed like a haphazard series of measures under former President Donald Trump — sanctions on Chinese companies, increased tariffs, and the fatal subversion of the World Trade Organization dispute settlement body — has become a coherent, broad strategy under current President Joe Biden.
This strategy, which aims to reconstitute the role of the United States in the global economy, incorporates two imperatives. First, the US now views China as its main geopolitical rival and sees its technological ascendancy as a threat to national security. As the administration’s sweeping restrictions on the sale of advanced chips and chipmaking equipment to Chinese companies show, the US is willing to sacrifice international trade and investment to thwart China’s ambitions. Furthermore, he hopes other countries will do the same.
Second, US policymakers aim to make up for decades of neglect of national economic, social, and environmental priorities by focusing on policies that promote resilience, reliable supply chains, good jobs, and a clean energy transition. The United States seems happy to pursue these goals on its own, even if its actions could negatively affect other countries.
The best example of this is the Inflation Reduction Act (IRA), the Biden administration’s landmark climate transition legislation. Many governments in Europe and elsewhere have been outraged by the $370 billion clean energy subsidies included in the IRA, which favor American producers. Pascal Lamy, former head of the WTO, recently urged developing countries to join the European Union in forming a “North-South” coalition without the US, to “create a disadvantage for (Americans) that would make them change their position.” .
To be sure, Europe has its own brand of unilateralism, albeit milder than that of the United States. The EU’s Carbon Border Adjustment Mechanism (CBAM), which aims to keep carbon prices high within the bloc by imposing tariffs on carbon-intensive imports such as steel and aluminum, aims to appease to European companies that would otherwise be at a competitive disadvantage. But it also makes it difficult for developing countries such as India, Egypt and Mozambique to access European markets.
Therefore, developing countries have a lot to worry about. As the US and Europe try to isolate China and craft policies in support of their new domestic agendas, they are unlikely to have the interests of poorer economies in mind. For small, low-income countries, multilateralism remains the only safeguard against big-power solipsism.
But developing countries would do well to recognize that these one-sided policies are driven by legitimate concerns and are often designed to meet global needs. Climate change, for example, is clearly an existential threat to humanity. If US and European policies speed up the green transition, the poorest countries will also benefit. Rather than condemn these policies, low- and middle-income countries should seek transfers and financing that will enable them to follow suit. For example, they should require European countries to channel CBAM revenues to developing country exporters to support these companies’ investment in greener technologies.
More generally, developing countries need to remember that their economic prospects are determined first and foremost by their own policies. Short of a global slide into 1930s-style protectionism, they likely won’t lose access to Western markets. Furthermore, export-oriented countries such as South Korea and Taiwan engineered their growth miracles during the 1960s and 1970s, when developed countries were much more protectionist than they are now or likely to be in the foreseeable future. .
It is also true that the export-oriented industrialization model has lost strength for reasons that have little to do with the protectionist policies of the Global North. Because today’s manufacturing technologies require so much skill and capital, it’s hard for newcomers to replicate the success of the East Asian tigers (I call this phenomenon “premature deindustrialization”). Future development models would have to rely on service industries and small and medium-sized enterprises, rather than industrial exports, to build a thriving middle class.
The renewed focus of developed countries on building resilient and equitable national economies could also benefit the global economy. Cohesive societies are much more likely to support openness to international trade and investment than those disrupted by the uneven forces of hyperglobalization. As many studies have shown, job losses and regional economic decline can often engender ethnonationalist politics.
In a 2019 “letter to the next generation,” Christine Lagarde, then managing director of the International Monetary Fund and current president of the European Central Bank, lamented the rise in unilateralism and stressed the benefits of the post-1945 deal. “Bretton Woods launched a new era of global economic cooperation, in which countries helped themselves by helping each other,” he wrote. But the reverse is also true: any successful global regime, including the Bretton Woods system, must be based on the idea that countries can help each other by helping themselves.
In short, when it comes to achieving stable and sustainable growth, developing countries should ask not what the world’s richest countries can do for them, but what they can do to improve their own economic prospects.
The author
Dani Rodrik, Professor of International Political Economy at the Harvard Kennedy School, is President of the International Economic Association and author of Straight Talk on Trade: Ideas for a Sane World Economy.
Copyright: Project Syndicate, 1995 – 2023
