On Tuesday, February 11th, 2025, the Phelan US Centre hosted the panel discussion event “Is there a new Washington Consensus?” Christofer Adams gives an overview of the panel discussion during the event.
On Tuesday, February 11th, 2025, the Phelan United States Centre organized the roundtable discussion event, ‘Is there a new Washington Consensus?’ The panel was chaired by Phelan US Centre Director, Professor Peter Trubowitz, and brought together Professor Stephanie Rickard (LSE Government), Professor Andrés Velasco, former Minister of Finance of Chile (LSE School of Public Policy) and Professor Robert Wade (LSE International Development) for an insightful discussion.
For more than two decades after the Cold War, the ‘Washington Consensus’ or neoliberalism, has been the guiding principle in US foreign economic policymaking. Today, this market-oriented consensus is increasingly out of favor, and Republicans and Democrats have now both shifted toward government intervention and away from free trade. Emphasis has also been placed on economic control and national security. These trends have been further extended with the current Trump administration, which has called for a six-month review of its membership in all international organizations. The current concern is that the US might withdraw from the International Monetary Fund (IMF) and the World Bank. The event’s discussion panel considered the probability of this happening and the potential consequences.
From trade reciprocity to economic realignment
In her comments, Professor Rickard highlighted how the US economic policy landscape on trade has changed. She posited that the US used to negotiate agreements to lower trade barriers, which conferred access to foreign markets, under the rule of reciprocity. Today, however, the principle of reciprocity seems to be used to raise trade barriers. Yet, this does not mean that there is no Washington Consensus. In fact, she argued, because of their size, some countries find themselves constrained or unable to engage in the same sorts of practices that the US has adopted, including industrial policies and government subsidies, which they simply cannot afford. The latter group does not have the physical capacity to compete, for example with the US CHIPS Act.
Professor Rickard remarked that there is a growing realignment of the global economy where we observe competing models of state economic relations and how to navigate geopolitics. For example, China has put its thumb on the scale to develop particular parts of its economy, while the EU’s model is one with greater rules and internal regulation, though it has implemented its own version of the US CHIPS Act and the Green New Deal, the latter being an example of a policy area the US has not really developed to the same extent.
Professor Rickard concluded her observations with two suggestions. First, she considered that there is no one-size-fits-all policy, “there is no silver bullet”, she emphasized. The same policy works differently in different contexts because how policy impacts an economy is dependent on the many factors inherent to a society. Second, she drew our attention to potential distributive issues, as trade creates gains and losses. Therefore, we must create ways for sustainable economic growth that anyone can benefit from.
Trade policy and the IMF
Professor Velasco began his comments by suggesting that the break with neoliberalism remains a fantasy for US economic policy. He noted that the illusion of a shift might have emerged from the previous Biden administration’s spending on subsidies. He also quoted Jason Furman’s recent Foreign Affairs article on the “post-neoliberal delusion”. Regarding trade policy, the Washington Consensus is context dependent. He argued that labor-abundant countries may be more favorable for trade while capital-abundant countries may be more favorable to less trade. In so doing he pointed out the recent trade agreement between the South American trading bloc, Mercosur, and the EU. Regarding the US’ potential withdrawal from the IMF, during the discussion section of the event, Professor Velasco reminded us that the US has a quota in its financial contribution, and that a fraction of this is paid in capital and the other is capital that could be demanded in times of stress. Therefore, the amount that could be saved by the US remains trivial. In addition, the IMF is a lender of last resort to the world economy. He concluded by reminding that some countries are dependent on US dollars and that IMF plays a major role in supporting funding in certain countries.
The US and the Bretton Woods Institutions
Professor Wade commenced his remarks by emphasizing a lesson from history. During the early Reagan administration, the US considered leaving the IMF, but the exposure of US banks in the Latin America debt crisis, beginning in 1982, then made such a departure undesirable. Professor Wade outlined that the US may now be planning to withdraw from the World Bank and other multilateral development banks for two reasons. First, the articles of each organization provide that members that leave get their contributions back. Second, multilateral development banks have not satisfied all aspects of their ever-evolving missions. As for the IMF, fund insiders say that senior staff and executive directors seem rather disconcerted by the prospect of the US withdrawal.
In response to an audience question, Professor Wade suggested that it is somewhat unlikely that the US would withdraw from the IMF as they possess a veto – which is a function of the US’ financial contribution. In fact, the rationale for remaining in the IMF would be to spread financial risks among other members, rather than the US having to fully fund a country’s financial need. Professor Wade highlighted that, in the years following the global financial crisis, negotiations took place to increase the capital base of the IMF. However, the US needed approval from the Treasury and the Congress. Therefore, since the latter demanded a quid pro quo for its constituents, its absence made the increase not conceivable. During his remarks, Professor Wade also suggested that the status of the dollar as a global currency will likely remain for some time as it is relied upon by global trading.
In conclusion, the panelists considered that withdrawal from the World Bank and the IMF may not be in the immediate interests of the US. As the dollar remains the global currency for international trade, with the US having the largest shareholding in the IMF, remaining in these international organizations may further provide the US with political and economic power.
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- Note: This article gives the views of the author, and not the position of USAPP – American Politics and Policy, nor the London School of Economics.
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