Localising development – III

Mahmoud Mohieldin
Wednesday 23 Aug 2023

The countries of the Global South are on the rise, leading to waves of economic protectionism among the countries of the North, writes Mahmoud Mohieldin


Against the backdrop of mounting conflicts and tensions between the existing economic powers and the emergent ones, the term “Global South” has replaced that of the “Third World” to denote the low to middle-income developing nations that today are being buffeted by various global shocks and disruptions.

The term “Global South” combines geopolitical with socioeconomic dimensions in distinguishing this group of countries from the advanced industrialised nations in the North that have the advantage of having been the first to benefit from the Industrial Revolution. In addition, the countries of the north continues to benefit from the unequal terms in international trade between them and countries with lower incomes and wages.

Some industrialised nations accumulated wealth by colonialist exploitation and by plundering the resources of the South. Some went on to acquire exuberant privileges as the victors in World War II. In the game of nations in war and peace, the victors not only write history, but they also, and more importantly, set the rules of the game to ensure that they can continue to enjoy the fruits of victory.

However, recent developments in the Global South herald a rebellion against the perpetuation of the old “Third World” era. That concept, together with the consequences of its association with the “Second World” of the formerly Communist countries, that ended with the fall of the Berlin Wall in 1989 and the emancipation of countries behind the Iron Curtain that had shackled their economies and their freedoms for decades.

Subsequently, the “First World”, ie, the capitalist countries, was struck by the global financial crisis of 2008, which sent tremors through its very foundations. The domestic and international political repercussions of the crisis for the capitalist countries have proved more serious and enduring than the economic ones. We continue to see the rise of far-right movements, racist and xenophobic backlashes, and the election of eccentric political leaders in them after campaigns that reflect sharp political polarisation, huge economic disparities, and deep social discontent.

The industrialised nations have also woken up to the fact that the economic balance of power in the world has begun to shift towards the East. In the emergent economic powers of China, India, and the ASEAN countries, burgeoning human potential has been unleashed and has been rapidly gaining impetus through investment in education, knowledge, and innovation, yielding increased productivity, higher GDP and per capita incomes, and the rise of a robust and ambitious middle class.

Despite all the shocks and disruptions, and the struggle in dealing with them, a significant number of countries of the Global South are on the rise. In addition to the emergent economies in the East, they include the Latin American countries and some determined Middle Eastern and African nations that have set themselves on the course of progress. Faced with such rapid developments in the Global South, the industrial economies have begun to dust off old protectionist instruments.

An important dialogue took place in the US recently on the new industrial policies adopted by Washington and their implications for US foreign policy and international economic relations. Hosted by the US Peterson Institute for International Economics, the participants were Robert Zoellick, a statesman who served as a US trade representative and deputy secretary of state, as well as president of the World Bank and Larry Summers, an eminent economist and former US treasury secretary.

One was struck by the fact that, even though they belong to different political parties and have different analytical backgrounds, both men agreed that the US government’s recent Inflation Reduction Act and trade restrictions were unlikely to serve the country as intended.

They cited the example of the negative outcomes that measures of this sort have had on the electric car industry in the US. One of the consequences of former US president Donald Trump’s decision to increase US protectionist tariffs, to which China retaliated with similar increases of its own, was that the US Tesla Company made a move to China and established a manufacturing facility with ecosystem for its electric cars there. As a result, China leaped to the fore as a producer and exporter of electric cars.

However, instead of reversing Trump’s trade barriers, the Biden administration has continued the same policy using a “Buy American” slogan. The US’ European trading partners have been threatening to retaliate, but instead of reversing course, the US made an exception for European cars if they were under lease plans. As a result, European-made cars have increased in number in the US, where both consumers and producers would have been better off without the present combination of protectionist subsidies and exemptions.

In fact, they said, the economy as a whole would have been better off as well, given the impacts of such policies in terms of increased national debt, inflation, and future tax burdens. The debate also warned of the potentially negative impacts of such policies on US influence in future international trade negotiations and on US interests overseas in general.

The substance of the dialogue and the analysis of related developments points to a series of experimental measures being introduced in the US informed by economic nationalism and inward looking protectionist measures that obstructs the movement of trade and pours subsidised financing into particular economic sectors. This trend has been termed the “New Washington Consensus”, in contrast to the Old Washington Consensus which, to put it simply, relied on economic deregulation, liberalising trade, and easing restrictions.

Of course, that outlook, too, was not without its shortcomings, both in terms of implementation and the policies used to impose it.

However, the measures being taken under the “New Consensus” often appear to be ad hoc, tentative, and impulsive, even if they are said to be designed to address climate change and to promote the green transition. Also, while they are ostensibly intended to safeguard the public’s economic interests and to support the welfare of the poor and middle classes, in fact they are passing an enormous onus onto future generations, which will have to bear the costs of subsidies, mounting debt, and inflation.

The measures also court retaliatory steps by “friendly” trading partners, as has already occurred, and they threaten to aggravate tensions with China and cause further disruption in global supply chains. All this has impacts on the economies of the countries of the Global South and the way they have to formulate their priorities and policies in the face of the onslaught of a variety of protectionist measures and the spillovers of waves recently applied taxes and subsidies in major advanced economies.

This article appeared in Arabic in Wednesday’s edition of Asharq Al-Awsat.


* A version of this article appears in print in the 24 August, 2023 edition of Al-Ahram Weekly

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