Emerging Trumporder or Trump(dis)order: IMF-WB advocated policy package at risk

US President Donald Trump

Singapore Foreign Minister Vivian Balakrishnan

The transmission from the old system to the new system called interregnum is not an orderly affair satisfying all the affected parties. Instead, says Balakrishnan, it will be chaotic, difficult, dangerous, and tumultuous. In this chaotic situation that has been pushed through their throats by external forces, like the one being done by Trump administration today, he advised Singaporeans to appreciate the emerging developments, and act as a single nation with agility and nimbleness demonstrating strong unity in them. It is only that unbreakable unity that will help Singapore to navigate with confidence toward success through the rough waters in the new chaotic world order

Emerging world economic order

The emerging world economic order – now tagged as Trumporder after its initiator – has turned the economic policy package advocated by IMF and World Bank for member countries upside down. His weaponisation of tariffs1 to reach the elusive goal of making USA a great nation again has been met with resistance by countries on his hit list. There is a tariff war between USA which fights it solo on its side and Mexico, Canada, and EU, fighting jointly and severally on their side, threatening each other even with non-tariff trade embargoes to check on moves by each.

Futile trade wars

Trade wars are futile that end up hurting all the warring parties at the end as argued by Adam Smith some 300 years ago.2 He said that for a short time tariff protection may work but when retaliatory moves are made by the targeted countries, it will reverse the original gain. According to him, it is the merchants and manufacturers who get the most benefits from the monopoly power they get through high duties and trade prohibitions, but people at large are disadvantaged due to the high cost of buying of necessities.

Smith minced no words when he castigated the politicians in this regard. He said that legislators who propose the tariff protections are not smart to make that judgement because “the skill of that insidious and crafty animal, vulgarly called a statesman or a politician, whose councils are directed by the momentary fluctuations of affairs”.3 Thus, for a short gain, a nation may lose everything in the long run. But in the emerging Trumporder, it is not only those insidious, vulgar, and crafty animals and people in their respective countries who will be hurt. It seems that the whole world is set to suffer because it is going to be Trump(dis)order now, as warned by the Singaporean Foreign Minister, Vivian Balakrishnan addressing a special committee of Parliament recently.4

Singapore’s reading of emerging world economic order

Balakrishnan’s reading of the nature of the world following Trumporder is as follows. The world for many decades followed a single dominant policy package, namely, trust in markets, which was characterised by unipolarity. Instead, what is being developed is a multitude of policy games that can be called multipolarity. There was a drive for free trade under the old order but what is emerging now is its antipathy calling for increased protectionism. Hence, the world is moving from multilateral collaborative dialogue to resolve global issues to unilateral solo working that aims at protecting the interests of individual countries.

Balakrishnan elaborated on this point as follows: There was globalisation that had been accepted as the tenet of the old-world order. Under globalisation, the rich country governments had allowed their manufacturing firms to set up factories in other countries to take advantage of the low-paid labour and cheap raw materials available in those countries. On the other side of the planet, developing country governments provided all the incentives for such firms to set up factories within their borders. This is known as offshoring of manufacturing and business management and information processing services. This system is being replaced by hyper-nationalism under which businesses are forced to set up their factories within the country, a system known as onshoring or reshoring.  Instead of openness practised in the old order, what is being promoted under the new system is increased closeness. Likewise, instead of accommodating immigrant workers, a practice under the old system, the door is being closed for them officially by promoting xenophobia reinforced by a cultivated popular attitude that all their problems are due to foreigners. In the past, there was optimism for a better future through supportive collective action by all the nations. It has been replaced by anxiety that prevents people from taking a longer-term view of a country’s affairs.

Chaotic transmission to new world order

Balakrishnan noted that the existing harmonious world order is being replaced by a new world order. The transmission from the old system to the new system called interregnum is not an orderly affair satisfying all the affected parties. Instead, says Balakrishnan, it will be chaotic, difficult, dangerous, and tumultuous. In this chaotic situation that has been pushed through their throats by external forces, like the one being done by Trump administration today, he advised Singaporeans to appreciate the emerging developments, and act as a single nation with agility and nimbleness demonstrating strong unity in them. It is only that unbreakable unity that will help Singapore to navigate with confidence toward success through the rough waters in the new chaotic world order. Surely, the approach by Singaporean government to face Trump(dis)order is proactive, and it is an example to be emulated by all other nations which are not direct parties to the current tariff wars.

Washington Consensus

What is this old economic order which the Singaporean foreign minister has referred to? That is the congruence of the economic policies advocated by three leading institutions at the time, namely, the US Treasury, IMF, and the World Bank in 1980s. Since all these institutions are in Washington DC, the British economist John Williamson who had been attached to the US-based Peterson Institute for International Economics or PIIE coined the term ‘Washington Consensus’ in 1989 to describe this policy congruence.5 As revealed by Williamson in a lecture delivered at the World Bank in 2004, there had been 10 main components in the Washington Consensus which he called the Ten Commandments.6

Instead of openness practised in the old order, what is being promoted under the new system is increased closeness. Likewise, instead of accommodating immigrant workers, a practice under the old system, the door is being closed for them officially by promoting xenophobia reinforced by a cultivated popular attitude that all their problems are due to foreigners. In the past, there was optimism for a better future through supportive collective action by all the nations. It has been replaced by anxiety that prevents people from taking a longer-term view of a country’s affairs

Ten Commandments of Washington Consensus

The first commandment says that the governments should have small budget deficits that can be financed by borrowing without resorting to printing money through central banks that imposes an inflation tax on people. A salient feature of this commandment is that it does not disapprove of the financing of the high government expenditure through taxation and borrowing but only through money printing causing the imposition of another tax called the inflation tax on people. Hence, it is only a part of the story since all the three methods constitute a burden on people and to alleviate it, the primary requirement is the adoption of a small government.

The second commandment is concerned about the need for reallocating the government resources from politically inspired projects to development-friendly areas such as education, primary healthcare, and infrastructure. This relates to the development of both the human capital and needy physical capital.

The third commandment specifies that governments should broaden the tax base to generate tax incomes and reduce the marginal tax rates to alleviate the burden on people. Its priority is for direct taxes such as taxes on income and wealth and not for indirect taxes on goods and services which have a higher incidence on low-income people.

The fourth commandment is on the liberalisation of financial markets to permit the markets to determine the interest rates.  This commandment is against the government-controlled interest rates that normally function as a tax on savers and a subsidy for borrowers.

The fifth commandment calls for the abolition of multiple exchange rates, adoption of a unified exchange rate system and maintain it at a level sufficiently competitive for the rapid growth of non-traditional exports. It aims at the diversification of exports into new areas.

The sixth commandment is about the need for abolishing quantitative restrictions on international trade and use tariffs to control the flow of imports. The tariffs should also be reduced progressively to a uniform rate of 10 to 20%.

The seventh commandment compels the governments to free foreign direct investments thereby removing all barriers for FDIs to move into the country. FDIs are the best method of increasing investments when countries have a shortage of foreign exchange and domestic savings to undertake the needed level of investments.

The eighth commandment recommends that the government’s involvement in the economy should be limited by privatising the state-owned enterprises. The objective of privatising state-owned enterprises is to increase their efficiency and profitability.

The ninth commandment is about the need for promoting competition in the economy by permitting new businesses to enter the market. For this purpose, it has been recommended that all regulations that impede the free entry of firms should be abolished.

The tenth commandment calls for the protection of property rights so that economic agents are able to undertake businesses or engage in economic activities with certainty about the investments they make. This is an important commandment since the protection of property rights, both physical property owned by a person and his human capital, should have the quality of disposing in the market by him in a transaction agreeable to the seller as well as the buyer. If property belonging to a person can be acquired by a government or any other party without following this course, there is no incentive for people to invest their time, money, and efforts in acquiring or developing both types of properties. It is a serious impediment to continuous economic advancement of a society.

Critics were quick to label the Washington Consensus as a representation of what had been known as neoliberalism or market fundamentalism.7 Hence, these three terms are being used interchangeably to describe the main features of the old-world economic order which Trumporder or Trump(dis)order has turned upside down, making IMF and the World Bank helpless.

USA: A beneficiary of FDIs

These Ten Commandments had constituted the world economic order that had been advocated by the three Washington based institutions concerned. While IMF and the World Bank had enforced them on member countries that had sought financial assistance from them, the US government had guaranteed their worldwide implementation. On its part, it had encouraged FDIs from USA to other parts of the world, on one side, and accommodated FDIs into USA. Thus, offshoring was a freely facilitated economic flow.

According to data published by the US Department of Commerce in September 2024, USA had been the largest recipient of FDI: up to 2023, its cumulative receipt of FDIs at historical costs had been $ 5.5 trillion, while at market value, it had been $ 13.5 trillion.8 The historical cost had amounted to 20% of GDP. In contrast, its outbound FDI up to 2023 had been at historical cost $ 6.9 trillion or 25% of its GDP. What this means is that USA had been the largest supplier as well as the guarantor of FDI flows.

The average rate of return on inward FDIs during 2023-22 had amounted to 5%, while that on outbound FDIs had been a little higher at about 8%.9 These are very attractive rates of return since the risk-free 10-year US Treasury rates during this period had ranged between 3.83% and 3.48%.10 Hence, the US government cannot claim that it has been unfairly treated through the FDI activities.

The US has also been the promoter of global free trade with a very low tariff rate that had averaged between 1.7% and 1.5% during 2010-2022 excepting the COVID years when it had spiked to 13.8% in 2019.11 The US economy was also a free supplier of global liquidity by running a massive trade deficit that had amounted to $ 1.2 trillion in 2024.12 Any decline in the trade deficit will be counter to the supply of global liquidity displacing the USA’s current role of unofficial world’s central banker nation. It will also promote the other competing currencies to take the position of dollar’s role in this regard.

Hence, the current policy of Trump administration will amount to a voluntary withdrawal from being the guarantor of the old-world order.

With that guarantor not in the picture, IMF and World Bank will not be able to implement the economic conditions which they enforce on borrowing member countries. Sri Lanka is particularly at risk since it plans to generate prosperity to its people through increases in the export of goods and services and FDIs. Since the Western country bloc is increasingly embracing restrictive trade and control on FDIs to combat the challenges posed by Trumporder, Sri Lanka will have to operate in a very thin global market. In addition, when the income levels in the Western bloc are to fall due to self-inflicted impediments to growth, the global trade and tourist flows are to shrink correspondingly

Trumporder or Trump(dis)order?

However, this is going to be changed by Trumporder which has now become Trump(dis)order. With that guarantor not in the picture, IMF and World Bank will not be able to implement the economic conditions which they enforce on borrowing member countries. Sri Lanka is particularly at risk since it plans to generate prosperity to its people through increases in the export of goods and services and FDIs. Since the Western country bloc is increasingly embracing restrictive trade and control on FDIs to combat the challenges posed by Trumporder, Sri Lanka will have to operate in a very thin global market. In addition, when the income levels in the Western bloc are to fall due to self-inflicted impediments to growth, the global trade and tourist flows are to shrink correspondingly. 

What this means is that Sri Lanka will have to find new markets through bilateral negotiations rather than relying on free global trade. It should improve its economic relations with both India and China to overcome the gloomy picture that is developing in the global economy. This requires proactive action as has been proposed by the Singaporean policymakers.

Earlier Sri Lanka gets into this, the better for the country.

References:

1See for a detailed analysis: Wijewardena, W.A, 2025, Trump’s misfiring trump card: weaponising tariffs and immiserating own citizens, in FT at: https://www.ft.lk/columns/Trump-s-misfiring-trump-card-weaponising-tariffs-and-immiserating-own-citizens/4-773106 .

2Smith, Adam, 1776, The Wealth of Nation, Book IV, Chapter II, Bantam Edition (2003), pp 568-593.

3Ibid, p 588. 

4Watch: https://www.youtube.com/watch?v=xhY8pAKMn-g&t=2038s 

5https://www.piie.com/blogs/realtime-economic-issues-watch/what-washington-consensus 

6https://www.piie.com/sites/default/files/publications/papers/williamson0204.pdf 

7https://www.worldscientific.com/doi/pdf/10.1142/9789811236785_0001?srsltid=AfmBOopNP0UEr06QB_d0  bcl33XMC71waDVJHGeKZSn6TS2-kqjLz8ici 

8Department of Commerce, Sep 2024, Foreign Direct Investment in the United States, p 4. 

9Ibid, p 9.

10https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart 

11https://data.worldbank.org/indicator/TM.TAX.MRCH.WM.AR.ZS?locations=US 

12https://www.bloomberg.com/graphics/2025-us-trump-tariffs-trade-deficit/

(The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at [email protected].)