Finance, tariffs, and cars
Hello and welcome to the 25th Dispatch. Tim is now in Mexico after visiting Brazil; but this is holiday time, so it’s mostly me (Kate) and a bit of input from Lara this week.
COP finance deal, and what surrounds it
The climate finance goal agreed at COP29 fell well short of what is needed to support decarbonization, adaptation, and loss and damage in the face of high costs of capital and other macrofinancial constraints for developing countries. (In fact loss and damage wasn’t referenced at all; the adaptation goal was neglected; and even an attempt to reference inflation-indexing the dollar figure failed.) Carbon Brief has one of the most comprehensive overviews of the outcomes, with just enough detail on the incredibly fraught negotiations. Some disagreements could be described as strategic: should targets be ambitious, broad and vague – or narrow, specific and credible? But the underlying tension was fundamental: developed countries do not want to promise grant-equivalent finance on the scale that is required.
Some of the roots of discontent
There are many sources of the huge and stubborn gap on climate finance. Broad inertia on climate action is certainly one of them, but the constraints and shortcomings of the entire international order and the financial architecture also have to be considered. And the US has for decades been at the centre of that order.
Lara and I are writing a Polycrisis newsletter on Phenomenal World about what the new Trump administration means for multilateralism after the Biden administration, in many cases, neglected to repair the havoc that Trump 1.0 gleefully wreaked.
We were picking over examples of this; one is the undermining of the WTO via blocking its Appellate Body nominations (first by the Obama administration and then, more comprehensively, by Trump – with the Biden administration declining to reverse it).
We also look at the World Bank and the IMF, which for all their flaws, are critical tools for advancing development and providing a global safety net (such as it is) for developing countries. The IMF is probably the single biggest entity that determines development and climate finance and, of course, climate policy – and indeed all policy – in many developing countries.
The IMF also an example of a US administration imposing their will on multilateral instruments – and of successive administrations then maintaining that stance. Lara dug up this excellent paper by Alex Kentikelenis and Sarah Babb in 2019 (and an excellent thread about it on the old, bad place). By poring over thousands of documents from the IMF and James Baker III (Secretary of the Treasury under Reagan), they identified the tactics employed by the US administration in the 1980s to turn the IMF from a body solely concerned with currency stabilization to the structural adjustment-driving body that we all know today.
It took a subtle and sophisticated strategy to get there:
“We show that, as the leading change agent, the United States bypassed established procedures for changing the IMF’s formal charter and guidelines. Instead, the United States opted to pursue a subtler institutional transformation strategy that altered the organization’s operational norms. The strategy rested on three pillars: the mobilization of resources and allies, the normalization of new operational routines, and symbolic work to stabilize the new modus operandi. This approach enabled the United States to profoundly alter the IMF’s activities while avoiding politicization associated with formal change. In this way, a new institutional order was born; the old, modest IMF assistance for currency stabilization gave way to all-encompassing structural adjustment programs that fundamentally reshaped developing countries’ economies, thereby diffusing free markets around the world.”
Kentikelenis and Babb also note that this was with the blessing and encouragement of some Wall Street banks – the Wall Street Consensus it seems was there all along with the Washington Consensus.
Might we be seeing a new Baker? This week in the FT, Shahin Vallee wrote about John Bessent, Trump’s pick for Secretary of the Treasury. Shahin is a fellow at the Germany Council on Foreign Relations, and a co-author with Tim on the ‘Permanent Suez’ report about Europe; in the past he worked with Bessent at Soros Fund Management.
In contrast to the incoherent measures put forward by Trump and some of his other nominees, Shahin writes:
“Policy and political regime changes in the global macroeconomic environment, exchange rate misalignment and imbalances are among Bessent’s central preoccupations. While Bessent formally stands behind the Maga economic policy agenda, he certainly understands how disruptive it could be not only to the US and the global role of the dollar, but also to the world economy.”
Shahin suggests Bessent could be capable of orchestrating some kind of Baker-style shift; mentioning in particular the Plaza Accord where the G-5 countries agreed to devalue the dollar. He writes:
“A very aggressive trade policy towards China as well as towards the US’s allies will not achieve the necessary rebalancing in the world economy but could eventually lead to a new grand bargain — a strategy Bessent has described as “escalate to de-escalate”. On this view, tariffs are best seen as a negotiating tactic designed to extract economic policy concessions from key trading partners.”
Of course, it’s very, very unclear whether any kind of “burn down free trade to save it” strategy is behind any of what Trump plans to do, or will actually do.
One which note, the Wall Street Journal reported this week that Mexico is getting nervous about plans for a BYD factory there, as the threat of US scrutinizes exports from Mexico and Canada with Chinese origins. BYD for its part is expecting the plant will produce for Latin American markets, rather than the US as it had originally planned.
Tim visited the BYD plant that’s already being built in Bahia, Brazil, at the site of an old Ford facility.
That is all from us for this week. You can email us or join the Discord. And of course please follow us on Bluesky. We also have a LinkedIn page! Truly, we do.
We’ll likely have a shorter Dispatch next week: Tim is still on a break; Kate is at a symposium at Sydney University and with Lara, is finishing that new newsletter.