As Prime Minister Narendra Modi steps up engagement with the US and its allies — at the G7 summit in Hiroshima this week, the Quad summit in Canberra the week after, and bilateral visits to Washington and Paris in June and July — the restructuring of the global economic order will figure high on India’s bilateral and multilateral agenda.
The geopolitical consequences of Russia’s war in Ukraine and the Western response to it have dominated India’s geopolitical discourse over the last year. But the Indian debate is yet to pay attention to even more consequential geoeconomic changes being unleashed by the vigorous commercial competition unfolding between the US and China.
As in the geopolitical domain, so in the geoeconomic, there is a growing convergence of interests between Delhi and Washington. Translating that into concrete outcomes will demand much hard work and some creative solutions.
To be sure, this geoeconomic competition between Washington and Beijing had begun to develop in the Trump years. President Joe Biden has intensified it and lent a plausible 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.
That the security czar is talking about US economic policy is in itself interesting. Traditionally, the worlds of economics and geopolitics have tended to be exclusive. Washington’s effort to integrate the two is driven by China’s massive and simultaneous challenges on both the geopolitical and geoeconomic fronts.
Some are dubbing the Biden initiatives as efforts to build a “New Washington Consensus”. The term “Washington Consensus”, which gained ground in the late 1980s, referred to the shared prescriptions from the International Monetary Fund, World Bank, and US Treasury on deregulation, privatisation, and free trade for economic modernisation. By the 1990s, these recommendations gained widespread policy traction in the chancelleries of the world, including in India.
Sullivan’s speech is a frontal attack on conventional economic wisdom and an ambitious call for a transformation of the global economic order. But why is the US that created and nurtured the old Washington Consensus now trying to demolish it? Sullivan highlights several challenges that have arisen from the old Washington Consensus and inflicted much damage on the US economy and society.
One is the conviction that the “markets know best” approach led to the hollowing out of the US industrial base. Sullivan is not dismissing the importance of the markets. But he argues that “in the name of oversimplified market efficiency, entire supply chains of strategic goods — along with the industries and jobs that made them — moved overseas.” He reminds the Washington audience of an unkept promise that “deep trade liberalisation would help America export goods, not jobs and capacity”.
Two, the notion that “all growth was good growth”. Sullivan says that this led to the privileging of some sectors like finance “while other essential sectors, like semiconductors and infrastructure, atrophied”. Under the old Washington Consensus, US industrial capacity took a real hit, concludes Sullivan.
Third, Sullivan challenges the old assumption “that economic integration would make nations more responsible and open, and that the global order would be more peaceful and cooperative”. He also refers to the premise underlying China’s admission into the WTO in 2001 — “bringing countries into the rules-based order would incentivise them to adhere to its rules”. Sullivan points to the problems triggered by the integration of a “large non-market economy” like China into the WTO. He reminds the China enthusiasts in the US that “economic integration didn’t stop China from expanding its military ambitions in the region”.
As he debunks the prevailing ideology, Sullivan looks at two other challenges that America’s economic policy must confront – the urgent need for a “just and efficient transition” to green economic growth and the political imperative of reducing economic inequality at home that has undermined American democracy.
What are his solutions? Sullivan offers a five-fold policy framework. The first is to return to industrial policy that was the hallmark of US economic development historically, but dismissed by economic neoliberalism in the last few decades. Over the last couple of years, Sullivan points out, the US has restored the role of the state in pumping investments into semiconductor production and promoting the development and deployment of green technologies.
Second, Sullivan argues that the US is not seeking autarky or promoting protectionism. He insists that the US is not going alone, but wants to develop a joint effort with US allies and partners, including India. “We will unapologetically pursue our industrial strategy at home — but we are unambiguously committed to not leaving our friends behind.” Sullivan says the ultimate goal of the US is a “strong, resilient, and leading-edge techno-industrial base that the United States and its like-minded partners, established and emerging economies alike, can invest in and rely upon together.”
Third, Sullivan calls on friends and partners to look beyond traditional trade policies. He refers to the criticism that the US-proposed Indo-Pacific Economic Framework is not a free trade agreement. Sullivan says, “That’s exactly the point”. “In today’s world, trade policy needs to be about more than tariff reduction”. The focus, according to Sullivan, should be on developing diversified and resilient supply chains, promoting clean energy transition, and ensuring trust in the massive infrastructure that supports the rapidly expanding global digital economy.
Fourth, Sullivan wants the US to mobilise “trillions in investment into emerging economies — with solutions that those countries are fashioning on their own, 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.
Finally, Sullivan points to efforts to develop a new set of export controls on sensitive technology that will limit national security threats from China and other rivals. Sullivan is conscious of the obstacles that need to be overcome at home and in the world to devise a global economic order that works for both the US and its partners. The US is ready for substantive engagement with its partners and Delhi must be ready to respond.
The common themes in the economic strategies are many. These include China’s geoeconomic challenge, the dangers of dogmatic commitment to globalisation, the need for industrial policy to develop national manufacturing, 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 as well as on the details of the specific outcomes in rearranging the global economic order. Building on new opportunities and resolving new problems must be viewed as a historic opportunity for India’s economic statecraft.
At the dawn of the reform era in the early 1990s, India struggled to cope with the old Washington Consensus. Today as one of the world’s leading economies, it can and should actively reshape the global economic order.
The writer is senior fellow, Asia Society Policy Institute, Delhi and contributing editor on international affairs for The Indian Express
