Jorge Heine: A ‘make or break’ G20 summit in Buenos Aires

December 06 , 2018

By Jorge Heine,a non-resident senior fellow at the Center for China and Globalization(CCG) in Beijing and a former ambassador of Chile to China

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 union-based, 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 re-evaluate 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 so-called “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.

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