Last week, Reserve Bank of India (RBI) Governor Sanjay Malhotra touted India’s “bright prospects in the changing world order” in the medium term, adding that “opportunities are there for the taking”. But will India be able to get its hands on any of these opportunities?
On August 7, the New York Times published a column by Jamieson Greer, the US Trade Representative, titled ‘Why we remade the global order’. In a rather telling illustration of the second Trump presidency’s handling of the power it wields over the rest of the world, Greer termed the “current, nameless global order” as the ‘Turnberry system’.
Turnberry, of course, is a Trump-owned hotel and resort on the western coast of Scotland where in late July the US President and his European Commission counterpart, Ursula von der Leyen, announced their bilateral trade agreement. As part of the deal, goods from the European Union (EU) will face a tariff of 15 per cent when entering the US. However, it did not end there: by 2028, the EU will buy $750 billion of American energy products and invest $600 billion in the US.
The deal has been called a ‘capitulation’ and humiliating for the EU. According to Julian Hinz, head of Research Center Trade Policy at Berlin-based Kiel Institute for the World Economy, it was an “appeasement” and abandoned the World Trade Organization’s (WTO) principles.
“Under WTO rules, member countries must apply the same tariffs to all other members. Deviations are only permitted under free trade agreements in which both sides reduce their tariffs to zero. The current deal clearly violates these principles and sets a dangerous precedent,” Hinz warned on July 28, adding that Trump’s strategy of “pitting other economies against each other” had only been strengthened.
Greer’s New York Times column, however, made no bones about abandoning the WTO and its doctrines.
Replacing Bretton Woods
According to Greer, the legacy of the Bretton Woods system lived on in the form of an arrangement dominated by the WTO he said was “untenable and unsustainable” – while the US lost industrial jobs and economic security, others did not undertake key reforms. China, meanwhile, was the winner. But now, “reform is at hand”, with the US-EU deal “oriented toward serving concrete national interests rather than vague aspirations of multilateral institutions”.
Story continues below this ad
Multilateral institutions such as the WTO, World Bank, and International Monetary Fund have been criticised for decades for their policy suggestions, especially when it comes to debt-laden developing nations, as shown by the Asian financial crisis of 1997 and the European debt crisis. Momentum to meaningfully reform them has gathered pace in recent years. Greer, however, has a more US-centric world order in mind.
“It took over 50 years from that first meeting at Bretton Woods until the creation of the WTO. It has been 30 years since. Fewer than 130 days from the beginning of the Trump Round, the Turnberry system is by no means complete, but its construction is well underway,” Greer concluded, calling the current round of global trade negotiations as the ‘Trump Round’ of discussions – a reference to the several rounds of talks held between countries that led to the formation of the WTO at the Uruguay Round in 1994.
But what exactly is the Turnberry system?
The Turnberry system
Going by Greer’s column, the Turnberry system involves nations aligning on economic and national security interests and rebalancing trade in a “more sustainable direction” such that the US’ manufacturing sector is back on its feet. This, he said, warrants a “generational project to re-industrialize America”. The era of the US getting other countries to lower their trade barriers by removing the tariffs that defended its own manufacturing sector is over; in its place, the removal of foreign trade barriers is being done “while ensuring sufficient tariff protection at home”.
This system also intends to enforce these new priorities in a far more telling manner than “drawn-out dispute settlement process”. Should the US detect non-compliance, there will be swift retribution in the form of higher tariffs – the “formidable stick” to the “mighty carrot” that is the opportunity to sell your goods in the “world’s most lucrative consumer market”, Greer said.
Story continues below this ad
Clearly, the Turnberry system is one which serves only one country. The US gets its pound of flesh in the form of re-industrialisation, while foreign companies get the opportunity to have access to the world’s richest consumers.
Or at least that’s what the US government thinks. Leading academics have repeatedly warned that Trump’s tariff war will not solve the country’s problems. For instance, Robert Z Lawrence of the Peterson Institute of International Economics and a professor of trade and investment at Harvard University has said it is a “fool’s errand” to make the US economy go through a massive disruption just to create a relatively small number of manufacturing jobs. Moreover, dealing with bilateral deficits individually does not balance overall trade and without policies that cut American expenditure relative to its output, Trump’s tariffs will only result in the shifting of its trade deficit from targeted countries to non-targeted ones, Lawrence has argued.
.