The new Washington consensus | financial times

If you like time travel, read Bill Clinton’s book 2000 speech urging Congress to admit China to the World Trade Organization. China’s entry would enrich Americans and help set China free, he said. “There is no question that China has been trying to crack down on the Internet,” Clinton admitted with a laugh. “Good luck! That’s like trying to nail Jell-O to the wall.”

Less than a quarter century later, China lives behind a Great Firewall and the Washington Consensus has long since been declared dead. That term, which was coined by a British economist in 1989, consisted of free-market maxims. His guarantor was the US and its shock troops the World Bank and the IMF. The ten-point list was exclusively economic. Geopolitics had lost its relevance since the end of the Cold War.

The past is another world. The goal of integrating China has been replaced by a debate about how to disintegrate China. Compare Clinton’s speech, the noon Washington Consensus, to this week’s G7 foreign ministers’ meeting, which focused on China’s withdrawal. Compare the situation of marginalization of the IMF and world Bank in today’s Global economy with the hegemonic organs of Bretton Woods of the nineties.

The new Washington Consensus is different from the old one in three key ways. First, Washington is no longer the undisputed Rome of the world today. It has competition from Beijing. Thus, the new consensus is largely confined to Washington itself and not the vaunted US that set the global standards after the end of the Cold War. It is an American political consensus with Donald Trump as its strongest exponent. He talks about how to trade with Porcelain it has created “American carnage” and led to the “rape” of America. Joe Biden’s language is much kinder, but his application is more rigorous. Biden’s politics is Trumpism with a human face.

Second, the new consensus is geopolitical. It has economic tools, such as restoring supply chains, prioritizing resilience over efficiency, and industrial policy. But these are largely means to a national security end, which is to contain China. The old consensus was a positive sum game; if one country got rich, others did too. The new one is zero sum; the growth of one country occurs at the expense of another.

The third difference is that the new consensus is as pessimistic as the old one was optimistic. In that sense, it’s less intuitively American than what it replaced. The can-do spirit has given way to a can’t-do list. The US today can’t make trade deals, can’t negotiate global digital rules, can’t abide by WTO rules, and can’t support Bretton Woods reforms. Washington has lost faith in economic multilateralism.

Will the new consensus be effective? The ultimate test is whether China can be contained, compromised, competed with, and cajoled in various ways into agreeing to the US-led order. Today’s Washington subscribes to all of these approaches, some of which are more sophisticated than others. Biden himself focuses more on competition than cajoling. His goal is not to disengage from China, but to create what Jake Sullivan, the US national security adviser, calls a “little backyard” with a “high fence.”

That means the US will continue to trade with China, except for goods that can be used to upgrade China’s military, which means high-end semiconductors and anything that furthers China’s AI ambitions. It’s not obvious where you can safely draw that line, suggesting that Sullivan’s little garden will expand over time. Compared to the China hawks outside the Biden administration, however, Sullivan’s approach is nuanced and flexible. Yet the question still arises: how can China be squeezed into a US-led order that the US itself has ceased to believe in?

Biden has not yet given a clear answer to that question because it is so difficult. He wants to deprive China of the means to achieve military parity with the United States without provoking a US-China conflict or global economic downturn. A large-scale decoupling would impoverish everyone and create an Orwellian world of hostile blocs. A return to the previous status quo, which Clinton exalted, would hasten China’s rise.

The middle way between the old Washington consensus and the new is to preserve the good in the old, rather than throw the baby out with the bathwater. Of course the story did not end. In the same way, however, the future is yet to be written. No power will be its sole author. But America still has a lot to say about whether the script will be dark or light.

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