Washington Consensus promoted the view that the operation of the free market and the reduction of state intervention were crucial for development in the global South. It is of the view that developing countries should adopt market-led development strategies (such as free flow of goods, services, labour and capital) that trickle down to the benefit of all.
Recently, the trade environment has turned protectionist. There has been a resurgence in views that argue in support for protectionist policies. It is well known that when America sneezes, the World catches a cold. USA has not only pulled out of the TPP, it has also imposed high tariffs on around $50 billion worth of Chinese imports.These actions have triggered other nations like China and USA to exchange trade blows as they have also simultaneously increased tariffs on USA’s exports. It is not only the developed nations that will suffer as a result of these policies. Developing nations’ welfare and growth possibilities depend crucially on trade as underlined by many classical and neoclassical growth theories.
A major shift towards protectionism was observed after the 2008 financial crisis. As a policy response to the 2008 financial crisis, a number of trade restrictive measures were employed by both developed and developing countries.
In recent times, there has been a number of political conflicts coupled with the demise of multilateralism. Proof of this is the slow decline of European Union as well as Brexit. More recently, USA has imposed 25% tariffs on $50 billion worth of Chinese goods.As a result, agreements on a bilateral basis or bilateralism have become a centrepiece of trade diplomacy. Currently, there is a move towards bilateralism in every area, ranging from trade, security to foreign policy. While it has been argued by most economists that “multilateral free trade should be the ultimate aim of commercial diplomacy”, bilateral agreements are only the second-best alternative. These carry the risks of deteriorating into exclusionary blocs that limit the benefits to only two countries.In the interwar period, bilateral arrangements led to severe contraction of world trade that led to Great Depression.
Thus, there was a leaning towards bilateral FTAs from multilateral agreements. In addition, this wave of bilateralism is not a global phenomenon. Only the developed nations such as EU, USA and certain South Asian countries dominate the bilateral FTAs. Developing nations such as Sub-Saharan Africa are still marginalised in the global context. Developing countries usually are not a part of a large number of bilateral FTAs as their bargaining power vis-vis developed nations is lesser and their political systems might project them as unstable destinations. Being a part of multilateral agreements will still give developing countries a better say in an agreement as they may join hands and put forward their demands in front of developed nations such as USA. Thus, bilateral negotiations should be seen as a movement towards rising protectionism and hence, they cannot be a substitute for multilateral treaties.