New Delhi and the New Washington Consensus

Source- The post is based on the article “New Delhi and the New Washington Consensus” published in the “Business Standard” on 17th May 2023.

Syllabus: GS2- International relations

Relevance– India and changing economic order

News- Prime Minister Narendra Modi will attend the G7 summit in Hiroshima this week, the Quad summit in Canberra the week after. There are bilateral visits to Washington and Paris in June and July.

The restructuring of the global economic order will be high on India’s bilateral and multilateral agenda.

What are geoeconomic changes being unleashed by the competition unfolding between the US and China?

The geoeconomic competition between Washington and Beijing had begun to develop in the Trump years. President Joe Biden has intensified it and provided an ideological framework.

In a major speech late last month, US National Security Adviser Jake Sullivan outlined a set of policy initiatives to pursue the geoeconomic contestation with China.

The US is seeking wider international consensus on the new economic approach from its allies and partners, including India. Some are calling the Biden initiatives as efforts to build a “New Washington Consensus”.

Sullivan’s speech criticises conventional economic wisdom and a call for a transformation of the global economic order.

What are several challenges highlighted by Sulivian that have arisen from the old Washington Consensus and inflicted damage on the US economy?

“Markets know best” approach led to the hollowing out of the US industrial base. There is importance of the markets. But, in the name of oversimplified market efficiency, entire supply chains of strategic goods along with the industries and jobs moved overseas.

There was a notion that “all growth was good growth”. This led to the privileging of some sectors like finance and neglected other essential sectors like semiconductors and infrastructure. US industrial capacity took a real hit.

Old assumption that economic integration would make nations more responsible and open, and that the global order would be more peaceful and cooperative.

The integration of a “large non-market economy” like China into the WTO created many problems. Economic integration didn’t stop China from expanding its military ambitions in the region.

Emphasise on “just and efficient transition” to green economic growth and reducing economic inequality at home that has undermined American democracy.

What are the solutions offered by Sulivian?

Sullivan offers a five-fold policy framework.

Return to industrial policy that was responsible for US economic development historically but was dismissed by economic neoliberalism in the last few decades.

He advocates the US’s friends and partners to look beyond traditional trade policies. The US-proposed Indo-Pacific Economic Framework is not a free trade agreement.

In today’s world, trade policy needs to be about more than tariff reduction. The focus should be on developing diversified and resilient supply chains, promoting clean energy transition, and massive infrastructure that supports the rapidly expanding global digital economy.

The US should mobilise investment into emerging economies with local solutions, but with capital enabled by a different brand of US economic diplomacy.

This involves offering an alternative to China’s Belt and Road Initiative, addressing the global debt crisis, and reforming multilateral development banks.

There is a need to develop a new set of export controls on sensitive technology that will limit national security threats from China and other rivals.

What are the choices for India?

The US is ready for substantive engagement with its partners. India must be ready to respond.

There are many common areas of engagement, like China’s geoeconomic challenge, the dangers of dogmatic commitment to globalisation, technological cooperation among like-minded partners, building resilient supply chains, addressing the economic concerns of the Global South, and reforming the global financial institutions.

There will also be many disagreements on the identification of priorities and the details of the specific outcomes in rearranging the global economic order.

It must be viewed as a historic opportunity for India. As one of the world’s leading economies, India can and should actively reshape the global economic order.