A ‘make or break’ G20 sum­mit in Buenos Aires

Global Times US Edition - - FORUM - By Jorge Heine The au­thor is a pub­lic pol­icy fel­low at The Wil­son Cen­ter in Wash­ing­ton DC, a non-res­i­dent se­nior fel­low at the Cen­ter for China and Glob­al­iza­tion in Bei­jing and a for­mer am­bas­sador of Chile to China. opin­[email protected]­al­times.com.cn

Much, if not most, of the me­dia at­ten­tion at the 13th G20 sum­mit in Buenos Aires this week­end will not be on the meet­ing it­self, but rather on a din­ner held on the side­lines of it, that is, the one be­tween US Pres­i­dent Don­ald Trump and Chi­nese Pres­i­dent Xi Jin­ping. Ad­mit­tedly, much is at stake in the lat­ter, and not just on mat­ters of trade and global eco­nomic gov­er­nance. As the world econ­omy tat­ters, ex­pec­ta­tions are that some kind of truce in the trade war be­tween the planet’s two largest economies will be de­clared.

That said, we should not lose sight of the broader chal­lenge fac­ing the G20, a group that rep­re­sents 85 per­cent of the world’s GDP and 75 per­cent of world trade. At a time when global FDI fell by 23 per­cent in 2017 to $1.43 tril­lion, when stock mar­kets are tak­ing a beat­ing and when busi­nesses are noth­ing but jit­tery, a sooth­ing mes­sage from what was once hailed as the “steer­ing com­mit­tee of the world econ­omy” would be most wel­come.

Yes, times are tough. But let us keep in mind that the G20 has been through worse be­fore and has come through. It was, of course, first called by pres­i­dent Ge­orge W. Bush in Novem­ber of 2008 to deal with the ef­fects of the fi­nan­cial cri­sis, later to be dubbed “the Great Re­ces­sion.” Act­ing in cri­sis-man­age­ment mode, it quickly built a con­sen­sus on the need to im­prove in­ter­na­tional bank­ing reg­u­la­tions, to in­crease fund­ing to the In­ter­na­tional Mone­tary Fund and oth­er­wise take mea­sures to stop things from spin­ning out of con­trol. It also moved quickly on it, and the world man­aged to avoid what might have been a real catas­tro­phe.

The cur­rent cri­sis, be­cause that is what it is, is not fi­nan­cial in na­ture. Nei­ther has it been trig­gered solely or even mainly by the Trump ad­min­is­tra­tion’s poli­cies. The lat­ter are much more a symp­tom than a cause. Truth is we are go­ing through a ma­jor tech­no­log­i­cal and in­dus­trial shift which is wreak­ing havoc in much of the de­vel­oped world, and its ef­fects are re­ver­ber­at­ing across its pol­i­tics and so­ci­eties in un­ex­pected ways.

Tra­di­tional man­u­fac­tur­ing, for long the main­stay of the economies of North Amer­ica and Western Europe, is be­ing dis­placed by mod­ern IT, tele­com and trans­porta­tion tech­nolo­gies, and mov­ing to the Global South (mostly Asia), hol­low­ing out vast sec­tors of these economies. Many of the union­based, high-pay­ing jobs in the steel and au­to­mo­bile in­dus­tries in the US Mid­west are gone, not to re­turn. Yes, with un­em­ploy­ment at 3.7 per cent, the US econ­omy is mov­ing full speed ahead, but Gen­eral Mo­tors has just an­nounced the clos­ing of a num­ber of fac­to­ries across the Mid­west and On­tario, lay­ing off 15,000 work­ers.

The shift to­ward hi-tech, ser­vice economies has done much the same to the Bri­tish in­dus­trial heart­land, where most of the sup­port for the Brexit vote was found. The pop­ulist, na­tivist re­ac­tion to these changes is equally pre­dictable: blame the for­eign­ers, blame for­eign com­pe­ti­tion, blame im­mi­grants. Politi­cians love scape­goats, and the “Us ver­sus Them” bi­nary choice is per­fect for them.

Yet we should keep in mind that the World Trade Or­ga­ni­za­tion (WTO) has been stuck in neu­tral since 2008, and that over the past decade the growth rate of global trade has been less than half of what it was be­tween 1997 and 2007. Con­trary to the con­ven­tional wis­dom of 20 years ago, glob­al­iza­tion has not turned out as ben­e­fi­cial for the North as was ex­pected, and it is ar­guably some of the emerg­ing economies (par­tic­u­larly the Asian gi­ants, i.e., China and In­dia) that have made the most of it.

Iron­i­cally the in­come in­equal­ity be­tween na­tions has di­min­ished, with vast sec­tors of the pop­u­la­tion lifted from poverty, but in­come dif­fer­ences within so­ci­eties have in­creased, with the “win­ner-take-all” dy­namic of con­tem­po­rary cap­i­tal­ism ex­ac­er­bat­ing them. This, of course, is bound to deepen po­lit­i­cal and so­cial cleav­ages and con­trib­ute to po­lit­i­cal po­lar­iza­tion.

Per­haps the time has come to reeval­u­ate the best for­mula on how to move for­ward on glob­al­iza­tion, and to make the most of the in­creased flows of goods, ser­vices, cap­i­tal and cul­tural prod­ucts across bor­ders. Un­til now, the op­er­at­ing prin­ci­ple has been to dis­man­tle as quickly as pos­si­ble any and all bar­ri­ers to it (ex­cept, of course, for peo­ple), and move even into so­called “be­hind the bor­der” is­sues ( i.e., in­dus­trial pol­icy, com­pe­ti­tion pol­icy, gov­ern­ment pro­cure­ment) treat­ing them as “trade mat­ters” and in­cor­po­rat­ing them into trade agree­ments. The no­tion that pre­cisely at the time of these ma­jor changes, gov­ern­ments should be left bereft of key in­stru­ments to deal with them is ex­ceed­ingly odd, to put it mildly. This is what Dani Ro­drik has re­ferred to as “deep glob­al­iza­tion.” Not sur­pris­ingly, a num­ber of gov­ern­ments have re­coiled from it. In this cu­ri­ous world, gov­ern­ments are sup­posed to sign trade agree­ments ac­cord­ing to which they largely give up much of what they are sup­posed to do in the first place. This is not the way for­ward. Mul­ti­lat­er­al­ism in global eco­nomic gov­er­nance is key, and the G20 must re-em­brace it, but it must also strike the right note.

What we need, then, and what the G20 could do, is to get be­hind the WTO, agree on re-em­pow­er­ing it so that it can move for­ward on trade lib­er­al­iza­tion and away from the cur­rent trend to­ward pro­tec­tion­ism and iso­la­tion­ism that we have seen in 2018, but in the un­der­stand­ing that it should fo­cus on in­ter­na­tional trade, and not on the myr­iad other things re­lated to do­mes­tic pol­icy. It is gov­ern­ments that have to re­spond to their con­stituents, and the no­tion that they should give up more and more of their pol­icy tools for the sake of ab­stract global com­par­a­tive ad­van­tage does not quite mesh with the way pol­i­tics works.

Yes, much is at stake in the meet­ing be­tween pres­i­dents Trump and Xi. But let us not over­look the fact that the prob­lem we are fac­ing to­day goes way be­yond the United States and China. This prob­lem is rooted in the very way we have con­ceived glob­al­iza­tion. What we are see­ing to­day is the back­lash, and the G20 is as good a group as any to step back and push things in a dif­fer­ent di­rec­tion.

Il­lus­tra­tion: Liu Rui/GT

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