Sri Lanka and global trade shock

THE Trump trade shock is a massive blow to the global order.It represents the biggest rupture since the end of the Bretton Woods system in the 1970s. In fact, it could have greater consequences, even inviting greater geoeconomic disintegration and geopolitical conflagration. How does a small country like ours respond to the crisis and what policies should we adopt?

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The current upheaval was not unexpected. The fallout of the global financial crisis in 2008, leading to Brexit and the election of Donald Trump in 2016, were clear signs of a global order that was coming apart. But for Sri Lanka and other countries of the global South, the options of preparing for such an eventuality through policies of self sufficiency were denied under the watchful eye of the International Monetary Fund (IMF) and its programs. In addition, domestic policymakers were beholden to the ideology of free marketers.

We are now paying the price. However, in some elite quarters the illusion continues that the broken global order can be put back together, or that some external power will lift us out of this crisis. It is as if they are hoping Humpty Dumpty can be put back together with all the King’s horses and men. Instead, a radical rethinking of our economic policies is imperative to confront this great global unravelling.

Collapse of Bretton Woods

To explain the unravelling of the global order, we must analyse the factors behind the current pre placement. Near the end of World War II, Western powers led by the US came together to create the Bretton Woods system, which was named after the venue of the conference in New England. The system, which includ ed the creation of the IMF and the pre cursor to the World Bank, depended on countries having space to pursue their own domestic policies such as full employ ment.

The goal was to overcome the threats of financial disasters and trade wars, which had originally contributed to the Great Depression of the 1930s. While this system worked for a time after World War II, however, eventually it experienced pressures due to the geopolitical dynamics of capitalism. They led to the breakdown of the interna tional monetary system.