The United States and China reportedly announced on May 12 that reciprocal tariffs will be suspended for 90 days. According to a joint statement, some tariffs will remain in place as the trade negotiations continue.
The sweeping tariffs US President Donald Trump imposed in early April, which destabilized the world economy and plunged the stock markets, are yet another example of how things have changed.
Although he claimed that his measures would “boom” the US economy, it was immediately obvious that they would not be effective. A trade war won’t bring back manufacturing or improve the situation of American workers.
The Trump administration appears to be back on its course now that its profits have been reduced and reports that the US GDP is declining. However, it is inappropriate to return to economic liberalism while promoting “stability.”
The current global economic system has shown to be unsustainable due to policies favoring the wealthy that have been implemented for decades. In order to address global socioeconomic issues and promote inclusive and sustainable development across both the Global North and the South, we need a new global economic order.
The liberal globalization crisis
The policies that the Global North’s elites have imposed over the past 80 years have caused the problems that economies around the world are currently experiencing.
The Allied Powers’ economic order, which was originally intended to combine trade, labor, and development best practices to promote inclusive growth, was a Keynesian concept in its original form. However, corporate opposition in the US and Britain defied this order over the course of the following decades, resulting in a skewed system centered on the World Bank and the International Monetary Fund, both of which were established in 1944.
Economic elites blamed rising inflation and stagnation on what they perceived as excessive concessions to organized labor, such as strong unions, on heavy regulation in the 1970s, not on temporary shocks like the oil crisis. They followed by launching an institutional counterrevolution against the Keynesian system of social compromise and power sharing.
Under US President Ronald Reagan and UK Prime Minister Margaret Thatcher, who actively pursued policies to restore corporate profitability, this counterrevolution emerged in the 1980s. They deregulated the financial sector, weakened labor unions, liberalized international capital flows, liberalized production, and privatized public services. In response, outsourcing of labor, tax evasion, real estate speculation, financialization, and credit-fueled bubbles became US corporations’ main sources of income.
In developing nations, the IMF, the World Bank, and regional development banks pressed governments to reduce public spending, privatize state-owned businesses, impose trade restrictions, undegulate markets quickly and without regard for social repercussions.
For many nations embracing globalization through radical liberalization, the 1980s and 1990s turned out to be lost decades. Massive employment shocks, rising inequality, skyrocketing debt, and persistent financial turbulence from Mexico to Russia were all caused by these policies.
East Asian economies made the exceptions as they honed their own rules by embracing the global economy.
Western economic elites were the main beneficiaries of this system, because domestic deregulation and low-cost production abroad made the most money. The same cannot be said for Western workers, whose labor protections, stagnating real wages, and growing economic insecurity were all subject to competition, relocation, and automation.
Illiberal economic policy is destined to fail.
Without addressing the pitfalls of liberal globalism, it became clear to those of us who had studied the post-war economic order that a nationalist, illiberal counterrevolution was on the way. In Europe, illiberal populists first gained a foothold in the periphery before gradually increasing to become the most disruptive force. We saw their signs early on.
They pursued policies that appeared to be akin to developmentalism in the nations where they seized power. They instead promoted oligarchies dominated by politically connected elites, instead of achieving real structural change. Without promoting productivity or innovation, they instead promoted rent-seeking and resource extraction.
Trump’s economic policies resemble nationalistic and populist rhetoric in some ways. His tariffs were never going to magically reindustrialize the US or end working-class suffering, just as illiberal economic policies in Europe failed.
If anything, tariffs, or the threat of them, will make China more competitive by enabling regional cooperation, reducing reliance on Western markets, and deepening domestic supply chains. The illiberal response in the US will lower labor standards, lowering real wages as a result of inflation, and supporting elites with fabricated protections.
Trump’s reactive trade measures are completely ineffective because he lacks a real industrial policy. A genuine industrial policy would coordinate public investment, promote specific industries, uphold labor laws, and promote good jobs through technological advancement.
The Inflation Reduction and CHIPS Acts, which he had in place of President Joe Biden, laid the groundwork for such an industrial policy agenda. These programs, however, are currently being attacked by the Trump administration, and their last vestiges will be forgotten.
Without these pillars, workers are subject to economic shocks and are cut out from growth gains, and the reindustrialization rhetoric is merely a political performance.
The future
Although Trump’s economic policies are unlikely to work, socioeconomic grievances will not be resolved by the same amount when the country returns to economic liberalism. Remember that previous attempts to keep this system from being so severely flawed failed.
Western governments helped rescue large banks from the global financial crisis in 2008, allowing financial markets to resume normal operations. The global economic architecture’s need for meaningful reforms has never been realized. As wages dropped, housing costs rose, and the level of economic insecurity rose, working- and middle-class families from Germany to the US’s living standards stagnated or decreased.
We can’t let go of this flaw. A a new global economic order that is focused on human-centered development, sustainable development, and multilateral governance. Governments would need to coordinate on regulating capital flows, setting minimum labor and environmental standards, sharing green technologies, and jointly financing global public goods in order for such progressive global multilateralism.
In this new economic order, the institutions of global economic governance would allow for the implementation of industrial policies in developing and emerging nations, strengthen ties with public finance organizations, and raise money for the development of compassionate, sustainable capital. By encouraging responsible public investment and development-focused financial collaboration, this cooperative approach would provide a practical alternative to liberal globalism.
Wealthy countries need to embrace the post-growth model, a , gradually, in addition to the eco-social developmentalism in emerging economies. Over an endless expansion of the GDP, this strategy places the interests of wellbeing, ecological stability, and social justice first.
Instead of pursuing short-term profits or extractive growth, this means investing in public services, green infrastructure, and care work. The focus should be shifting from expanding to better distribution and living within planetary boundaries for mature economies. Without overusing our dwindling natural resources, low- and middle-income nations could improve their living standards.
Governments could reclaim the ability to create stable, well-paying jobs, strengthen organized labor, and combat inequality with better tools for taxation and regulation of corporations and stronger cooperation between national and multilateral public finance institutions. Only by doing this can American workers achieve the standard of living they aspire to.
Such progressive, multilateralism would be a potent long-term counterweight to illiberal populism. However, to counterbalance the current liberal, capital-driven global framework and form strong global and regional political coalitions, it is necessary to form strong international and regional coalitions.
The key is to present a bold, coherent vision of industrial renewal, ecological sustainability, and global justice, as well as to criticize Trump’s destructive policies. Who will have to lead that transformation in the upcoming months will show.
Source: Aljazeera
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