At the annual meetings of the International Monetary Fund and the World Bank this week, IMF President Kristalina Georgieva expressed a mixture of relief and concern about the state of the global economy.
Policymakers have managed to rein in rapid inflation without causing a global recession. Yet another major economic problem looms. Rising protectionism and thousands of new industrial policy measures enacted in countries around the world last year threaten future growth prospects.
“For the first time, trade is not the engine of growth,” Georgieva said at an event hosted by the Bretton Woods Commission.
Economic policymakers convened in Washington showed little likelihood of heeding the warning.
Eighty years after the International Monetary Fund and World Bank were established to stabilize the global economy after World War II, the roles of these organizations and the guiding principles behind their creation have become largely obsolete. Masu. The IMF and the World Bank were designed to embrace a new system of economic order and international cooperation that would link the world economy and allow rich countries to assist poor countries through trade and investment.
But today, those who support the “neoliberal” concept of open markets are becoming an increasingly lone voice.
They could soon become even more isolated if former President Donald J. Trump is re-elected. Mr. Trump has promised to upend the rules of international commerce by accelerating the trade wars and protectionist policies that characterized his first term.
“Neoliberalism is dead in academia and policy circles,” said Joseph Stiglitz, former World Bank chief economist who served as chairman of the Council of Economic Advisers in the Clinton administration. “The question is: Is the survival of the fittest even worse than a system based on poorly designed rules?”
Neoliberal thinking rose in the 1980s and reached its peak in the 1990s. At the time, U.S. policymakers believed that free trade and a reduced role of government would “lift all boats.” Institutions such as the IMF, World Bank, and World Trade Organization promoted their economic philosophy, promoting open borders and the global flow of money and goods.
But this view is increasingly facing a backlash as the debt crisis widens, austerity measures backfire and trade barriers become tougher. Globalization, once a major goal of the United States and other Western countries, has been demonized as companies move factories and jobs to emerging countries, leaving behind many workers.
Distrust of global institutions is also growing in some of the countries they seek to help.
Protests have erupted in Kenya, Bangladesh and Sri Lanka in recent years over the terms of International Monetary Fund loans, which often require onerous fiscal reforms.
The World Bank has faced its own controversy, launching an internal investigation into its investments in international education programs this year after allegations of abuse. A group of activists demonstrated in front of the bank’s headquarters in Washington this week, protesting the bank’s “pro-market policy prescriptions” and financing of fossil fuel projects. World Bank officials said the bank is making progress toward restoring confidence by strengthening its lending capacity and delivering projects faster.
The WTO continues to be hobbled by a decision under the Trump administration to withhold appointments to key appeals committees. This decision, which the Biden administration has maintained, essentially destroyed the WTO’s dispute settlement system and led to a proliferation of trade restrictions around the world.
The cracks in the global economy are deepening rapidly, and this week was no exception.
In Washington, G7 officials finalized a plan to use interest earned on Russian assets to back a $50 billion loan to Ukraine. On the other side of the world, Russia held its own BRICS Summit aimed at deepening financial ties between developing countries.
“The vision of unstoppable economic progress, in which economies around the world become free market oriented and tightly linked through trade and financial integration, is being replaced by increased state intervention and fragmentation of global trade and financial flows. ” said Eswar Prasad, former director general of the IMF. China department.
This trend will likely accelerate once the second Trump administration takes office. Trump has proposed imposing blanket tariffs of up to 50% on all imports, with even higher tariffs on imports from China.
Project 2025, a policy document drafted by some former White House aides, calls for the United States to completely withdraw from the World Bank and IMF.
Leaders of global institutions have sought to take a calmer look at the changing political winds around the world as they grapple with the rise of populism.
Ahead of the meeting, World Bank President Ajay Banga said he would respond transparently to any future U.S. administration, continuing to fight poverty, combat climate change and expand access to health care in developing countries. He said he would focus on Banga also noted that Trump approved increased funding for banks while in office.
“Every time you go back five or 10 years, there have been very difficult times in the world,” Banga said. “We’re finding ways to get through these.”
Economic impact may be a separate issue, and the merits of trade barriers continue to be the subject of debate in international forums. The IMF’s World Economic Outlook report this week predicted that a sharp increase in U.S. tariffs would spur retaliation and reduce global output.
“It is clear that the era of restrictions and barriers was not the era of prosperity and strong leadership around the world,” European Central Bank President Christine Lagarde said Wednesday at an event hosted by the Atlantic Council in Washington. said. “So I think whoever ends up being president of this country should at least keep that in mind.”
While there is confusion over how President Trump’s inauguration will affect economic relations around the world, the Biden administration has also adopted protectionist and industrial policies. It seems that Vice President Kamala Harris has no intention of changing course even if she wins the election.
In an interview with The New York Times this week, Treasury Secretary Janet L. Yellen made the case for industrial policy. She explained that over time it has become clear that globalization without guardrails does not benefit most people equally, and the idea that free trade is always good is not a universal principle.
“We have reached a point in the United States where liberal adherence to neoliberal principles no longer appears to be helping to advance the prosperity of a significant portion of Americans,” Yellen said. “And this has been the case in other countries as well, leading to the adoption of strategies aimed at promoting more equitable forms of growth and social safety nets.”
This year, the Biden administration imposed steep tariffs on imports of Chinese clean energy products to protect green technology investments the United States is making with funds from the 2022 Inflation Control Act.
The European Union and Canada have also imposed tariffs on Chinese electric vehicles to prevent these cheap cars from flooding the market and damaging their own electric vehicle industries.
Canada’s Deputy Prime Minister Chrystia Freeland said Thursday that a “reflection on China’s mercantilism” is long overdue, arguing that industrial policy is needed to develop the clean energy sector.
“We need to plan for a green transition with good jobs,” Freeland, who is also Canada’s finance minister, told a Council on Foreign Relations event in Washington. “That’s why we think we need an industrial strategy now. We need government investment to facilitate that transition.”
Even the IMF, which has long criticized such industrial strategies as inefficient and costly, appears to be taking a more forgiving view. A research paper this month by foundation officials acknowledged that if carefully designed, industrial policy could “in principle” help address market failures.
Georgieva acknowledged that clinging to past policies comes with its own risks.
“We cannot stand still while the world is changing,” she said.
