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The Financial Express

G20 Summit 2018: A pause in trade war or a spin


G20 Summit 2018: A pause in trade war or a spin

As the G20 Summit was being held in Buenos Aires, the capital city of Argentina on November 30-December 01, the country itself had been in economic turmoil for quite a while. Argentinians are experiencing recession with inflation now running at 45 per cent. The government has introduced a tough austerity measures to receive IMF (International Monetary Fund) bailout financial package. The bailout is a stark reminder of Argentina's long history to suffer bouts of financial crises. The country has defaulted eight times on its international loan repayment obligations. Thousands of protesters have taken to the streets in Buenos Aires to protest against G20 Summit and the cost involved (US$112 million) in hosting the summit when the country is in the midst of a serious economic crisis. Recent months have seen the devaluation of the currency, Peso by 50 per cent and over the year by 100 per cent against the US dollar.

The summit discussed trade, climate change and economic policies. However, the summit's most critical issue revolved around the trade dispute between the USA and China. A breakthrough on the trade dispute came after a dinner meeting on Saturday  (December 01) where both the USA and China reached  an agreement to put on hold the plan to raise tariffs  on January 01, 2019  on US$200 billion worth of Chinese goods. In return, China also agreed to buy a substantial amount of agricultural, energy, industrial and other goods - though not yet clearly agreed upon what those goods would be. At the same time President Trump's tariff reprieve on Chinese exports comes with plenty of caveats. In fact, different spins on the outcome of the talk have already started emanating from Washington and Beijing.

While President Trump expressed his optimism saying "at some point we are going to end up doing something that is great for China and great for the United States.'' But President Xi did not express any such optimism about any breakthrough in the near future when he said "only with cooperation between us can we serve the interests of world peace and prosperity''. Xi further added that he looked forward to the opportunity "to jointly map out the future for China-US relations.'' Yet the fundamental disagreements between the two countries still remain unresolved. One thing for sure, Trump has not yet finished his trade war with China rather is likely to enter into a new phase. Some analysts think that it was a tactical retreat in the trade war against China to get time to regroup for undertaking a bigger fight with a much wider agenda to reshape the Chinese economic and political architecture.  The other main consideration also to garner support from the European Union (EU), Japan and other countries to side with the USA with its push against China's industrial development as outlined in  "Made in China 2025'' and investment in the Belt and Road Initiative (BRI). Furthermore, this pause will also give a short-term relief to the jittery stock market and sooth global financial markets.

Trump's hard-line stance against China draws strong bipartisan support in the US with a strong message that China can not be allowed to continue conducting its affairs business as usual. This is what further strengthens Trump's anti-China position and keep everyone guessing what he will settle for.  China has emerged as a major competitor in high-tech and high value added manufactures which the US considers as an economic threat. This view now permeates through the whole US policy making establishment. Many even point out that Trump won his Presidency largely due to support he received from the industrial heartland which faced stiff competition from Chinese imports. But there are other much deeper issues involved in the US where political leadership is blamed for failure to steer China to its desired direction as it did with Japan. They now see China as the county's biggest rival and it is a war for survival of the US. This pause in trade war is a prelude to a high-stake economic and geo-political competition between the two countries in coming years.

Before flying to Buenos Aires to attend the G20 Summit, UN Secretary General Antonio Guterres told reporters that  inequality  was pervasive and increasing, trade disputes were escalating and geopolitical tensions were adding further pressure on the global economy. He added we were heading for a world of cataclysm and uncertainty due to climate disruption. Meanwhile, the WTO announced that tariff measures imposed by Group of 20 (G20) countries reached a record level  and now reached US$481 billion. Ironically the host country Argentina remains one of most protected economies in the world.  WTO  Director General Roberto Azevedo said "further escalation remains  a real threat. If we continue along the current path, economic risks will increase, with potential effects for growth, jobs and consumer prices around the world''.

Argentina as the host country of this year's G20 Summit stressed the importance of the summit as a consensus building forum.  But the host country was struggling to find  the common ground among the heads of state and government and the EU. The forum intended to be the beacon of global governance but ten years on since its establishment, now many fear for the very future the G20. Despite all odds, the G20 Summit, unlike the APEC Summit last month, did issue a communique, but nothing much changed. The divisions on the final  communique have only reinforced how deeply fractured the grouping has become on key global issues. The communique just reflected that members agreed to disagree. But  for the host country, it was a victory of sorts that  a form of words were used to ensure it did not ended up in open conflict as did in G7 meeting in June.

The communique issued leaves room for differing interpretations of what is required of fixing the multilateral trading system by stating "it is falling short of its objectives and there is room for improvement.  We therefore support necessary reform of the WTO to improve its functioning''.  But what those reforms would be remain delightfully vague. Curiously, the statement  refrained from mentioning its commitment to "fighting protectionism'' as well as "unfair trade practices'' thus placating both the USA and China. The communique further pledged to work to "improve a rules -based  order that is capable of responding to  a rapidly changing world''. But  there was no reference  of the word "multilateralism'' in the context of rules-based global trading system.

On climate change, the statement is more vague, with 19 out of 20  leaders stating their support for the "irreversible'' Paris accord on emission reduction. But the statement noted the withdrawal of the US from the accord.

In the similar fashion the language on refugees and immigration was constrained. The statement made no reference to the role multilateral organisation (at the insistence of the US) in dealing with the issue;  instead stated "we emphasise the importance of shared action to address the root causes of displacement and to respond to growing humanitarian needs'.  The statement clearly shifted the responsibility to deal with the issue to wealthier nations.

The G20 Summit held at Buenos Aires did not resolve fundamental differences, it just papered over them. The US under the Trump administration is fully determined to slow down, if possible, stop China's industrial and technological progress leading to change in the power equation with China.  In this endeavour Trump has the full bipartisan support to render China into a Japan to enable the US to maintain its global economic dominance. But such a US policy stance has the  potential to lead  not only to economic war but also military confrontation with China.

Muhammad Mahmood is an independent economic and political analyst.

muhammad.mahmood47@gmail.com

 

 

 

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