All Hail The New Order!

“It seems that every day we're reminded that we live in an era of great power rivalry, that the rules based order is fading, that the strong can do what they can, and the weak must suffer what they must”

Mark Carney, Prime Minister of Canada 

Carney made a strong impression on the 56th World Economic Forum. Throughout his welcoming remarks, Carney addressed the elephant in the room, in this case the changing world order. While it is eloquent speech, the speech carries a pessimistic assessment of the current situation. Ruled based order is fading and the strong can do what they can? It all seems pessimistic considering that there is a well established international organization. Surely they will stay and make sure that world rule is done right?

      Realistically, it has never been that way. To begin with, Carney made an excellent point. The strong can do what they can. It is evident with Trump's economic interest with America First. With this vision, Trump has sought to leverage the United States hegemony in the global economy to advance domestic priorities. Dislike of budget deficits, rolling out tariffs and further securing America interest by withdrawing from 66 international organizations—the reason being that it does not serve American interest.

       It is clear that Carney’s fear is justified. With the country that established the world order is slowly or in this case rapidly detaching itself from the rules that they implemented. How should developing countries see this order?

Its Always Assymetrical

     Trump’s prioritization of America First has revived a move that seems taboo for advanced economies. Although his approach seems crude or blunt, history proves that America seems to always prioritize their national interest. In fact, this is not the first time that the United States used its positions to pressure other countries to save their interest. 

         One clear example is Plaza Accord. Agreed by G5 countries, the accord aimed to depreciate the dollars in order to address the trade imbalance. This cooperation did not come out of nowhere. By early 1985, the U.S. dollar had appreciated by 17% since March 1984 and by 47% since the early 1980s (Chen, 2026; Frankel, 2015).  The strong dollar made U.S. exports more expensive and imports cheaper, contributing to a current account deficit exceeding $100 billion (Bergsten & Green, 2016). This situation prompted major manufacturers to lobby Congress for policy action to address the imbalance.

     So in 1985, America along with other G5 Countries agreed to depreciate the dollar. The policy succeeded. Following the depreciation of the U.S. dollar, the U.S. trade deficit in goods and services declined significantly, falling from a peak of $152 billion in the third quarter of 1987 to approximately $30 billion per year by 1991 (Frankel, 2015). However, the accord didn't make everyone better off. It triggered an exceptionally large appreciation of the yen, amounting to 46 percent against the dollar and 30 percent in real effective terms by the end of 1986 (International Monetary Fund, 2011). Not only for Japan,the accord made other G5 countries' currency appreciate. Whether it is intentional or not, Plaza Accord is an event that shows that America’s Domestic Interest comes first. 

       That accord is not the only instance where America extorts itself from others. Another event is the Nixon Shock 1971. To give in context, In 1944, forty-two countries agreed to keep their currencies fixed but adjustable (within a 1 percent band) to the dollar, and the dollar was fixed to gold at $35 an ounce (Ghizoni, 2013a). Their goal is simple. Through this new monetary system, countries can have a stable exchange rate and promote economic growth.

     However, basic supply and demand rule took effect. As the world economy grew, the supply of  dollars had exceeded the amount of gold held in reserves. Fearing inflation, the US decided to move.  To address this problem, Nixon—without consulting other world leaders—decided to end the dollar’s convertibility into gold (Ghizoni, 2013b). This decision shows how the agreement that was decided collectively could be ended by one superpower. It is also important to see how a hegemony could change the trajectory of the monetary system. 

     Both examples show how the world order isn't always rule-based. If the hegemony feels that the current rule isn't beneficial enough for their domestic interest, they will try to reshape it in their favor. As we see further, the hegemony is maintained through international organizations. 

Washington Consensus No More?

        In the spirit of promoting development, the United States along with advanced economies in Europe advocated what became known as the Washington Consensus, a term coined by Economist John Williamson. The consensus refers to a set of policy recommendations promoted to  developing countries, often through international institutions like the IMF or World Bank (Irwin and Ward, 2021). 

        The consensus emphasizes that countries could achieve growth by implementing trade liberalization, lowering barrier entry to competition, a competitive exchange rate, or reducing restrictions on competitions.  As these consensus were often attached conditions for financial assistance from the IMF or World Bank, their adoption became widespread. 

       However, when we examined some East Asian miracles, we could see that they grow by ignoring that set of rules. Take Japan for example. Japan built their  industries by implementing special tax provisions, tariffs and import quotas, accelerated depreciation, tariff exemptions for imported machines (Nishijima, 2012). Those policies were taken to protect and nurture their infant industry. The policy proved to be successful, Japan went from exporting mainly fibres and textiles— around 30% of exports— toward higher value-added sectors such as machinery (39%) and metal products (26%). The success is widely attributed to government intervention. Without it, Japan might have remained reliant on lower value sectors such as textiles. As Japan kept improving their industries and slowly integrating to the global market, their economic impact became undeniable. The growth made Japan’s share of global GDP rose from about 6.2% to a peak of 17.7%, allowing it to emerge as one of the world’s largest economies and a major rival to the United States (Mueller, 2023; Mathisen, 2022). 

     The same could be said with South Korea. In one address, President Park Chung Hee emphasized that their national interests are increasing production, increasing exports, and increasing construction (Irwin, 2025). To achieve those interests, they implement the same thing as Japan. Promoting subsidies and cheap credits to specific firms.. And it worked. One empirical study found that heavy and chemical industries that were given subsidies grew faster even after 30 years than those who did not enjoy subsidies (Choi and Levchenko, 2025). This proves that subsidies do actually work in incentivising industries. 

What do they have in common? They prioritized state led industrialization implementing policies  like subsidies and specific credit. 

      However, as successful those countries may be, the World Bank begs to differ from that method. According to the report that they made in 1993, they stated that industrialization policies are costly and the success that those East Asian countries achieved are not easy to replicate. 

       That suggestion rang to the world. Soon, many countries started to deindustrialize and shift their focus on other industries. That suggestion is also backed by IMF conditions that for countries to get their aid, they have to abide by the conditions that they made. 

    After 30 years of that said suggestion, the World Bank admits they might have given a faulty suggestion. A new report shows that industrial policies are necessary for countries to level up. Chief Economist World Bank even admitted that advice has not aged well—it has the practical value of a floppy disk today.

    The report came after many countries tried to abide by it. One clear example is how premature industrialization became increasingly high post 1990. Empirical evidence found by Rodrik (2016) that post‐2000 industrialisation has declined by about 3.5–5.9 percentage points. The decline could be caused by many things, but it's certainly interesting how the decline happens after the World Bank frowns on industrial policies. 

    Similarly, those international institutions kept giving the wrong recipe of growth to countries. In Africa, the policy of Structural Adjustment Programmes was introduced.  The policy  requires African countries to liberalize their market, reducing subsidies, and all other popular neoliberal policies.

    In Nigeria, they did that. However, the policy raised agricultural export prices through subsidy removal and the lifting of certain import restrictions negatively affected Nigeria’s agricultural and manufacturing sectors, as higher output prices were offset by reduced farmer profitability driven by rising input costs (Weider, 2024). As cheaper imported goods entered the market, domestic producers struggled to compete, particularly in the absence of government support such as subsidies or industrial policy. This policy effectively made Nigeria lose one its potential industries. 

     However, not all countries decided to hear them. China provides a striking example of growth achieved by defying  many of those recommendations.  At a time when industrial policy was seen as taboo, subsidies were often frowned upon because they would distort prices and add little effect to the export growth (World Bank, 2023). Despite that, China insists on growing their industries by giving subsidies. And it worked. CEPR  found that additional subsidies were associated with larger export volumes with a higher product quality (Cheng et al, 2026).  China alongside other East Asian Countries prove that it is important to nurture and support infant industries.

      Washington consensus also prioritizes exchange rate as a way to make countries have a competitive export. One glaring problem is that it is not that simple. Textbook econ makes an assumption that lower currency leads to higher export. In real life, the global value chain made it complex for countries to export. Devaluing currency doesn't mean anything if the inputs are still imported or the final product itself is expensive (de Soyrez et al, 2020).  This means that if the domestic industry is not strong enough, devaluing currency will only make the country worse off.  

As the Washington Consensus not be the main solution that developing countries take, is the consensus not valid anymore?

Implications for The Global South 

The system's power comes not from its truth, but from everyone's willingness to perform as if it were true, and its fragility comes from the same source.

• Mark Carney

       Carney could not put it any better. For the past 80 years, global trade has been working because countries believe that it will work. Yes, sometimes that there might be periods when hegemony leverages its position, but it never has been permanent. However, recent development shows that the founder of that said order is detaching itself. Not only that, the recipes that countries are prescribed are given the wrong pills.

     With the amount of distrust and promotion of inward looking, the illusion of the world order has shattered. Not in a way that it will never come back. But in a sense, the rule of the jungle is back. 

       In some ways,  Trump might be right. National interest should be a prioritization. Those interests should be built on the foundation that each country has their competitive advantage. Countries need to plan and build their competitive advantage and keep improving it like China with their constant renewal of the five year plan.  

       As countries need to navigate between geopolitical instability. In times like these, a quote from Mohammad Hatta, Indonesia’s first Vice President, though originally intended for Indonesia, may also hold relevance for other developing countries. A country has to be a good sailor to be rowing between two reefs. It means that between the struggle, a country has to defend its own principles. In this case, the principle is to build its own economy.

Reference

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