By Wang Huiyao, president of the Center for China and Globalization(CCG)
A decade after the first G20 leaders meeting in Washington, world leaders will meet this week in Buenos Aires, Argentina, for the 2018 G20 Summit. This time is different due to an expected sidelines bilateral meet-up that the world is keeping a close eye on.
Ten years ago, with the onset of the financial crisis, it was recognized that a new global governance platform was needed to meet transnational challenges and adapt to shifts in the world economy. In particular, it was hoped that moving to a more inclusive mechanism than the traditional G7 would better reflect the importance and interests of developing countries and emerging markets such as China, India and Argentina. The members of the group account for around 90 percent of the world GDP and 80 percent of global trade. It is thus fitting that this decennial summit should take place in Buenos Aires, a cultural melting pot shaped by international trade and migration.
The political landscape has shifted dramatically in the decade since that first summit in Washington. Today, however, the world again finds itself at a crossroads. Recent years have seen a rise in anti-globalization sentiment around the world, and countries that helped to build the international order are now undermining the very institutions that support it. The global governance deficit has widened as multilateral institutions have failed to reform and adapt to new challenges.
The Buenos Aires G20 Summit offers a chance for world leaders to reinvigorate multilateralism and avert a slide toward increased protectionism and isolation. This summit takes on extra significance because it is expected to see a crucial meeting between President Xi Jinping and US President Donald Trump - their first face-to-face meeting since China and the United States became embroiled in a damaging trade dispute that has seen several rounds of punitive tariffs imposed by both sides, with the threat of more to come. Issues to be addressed in the expected discussion will affect not only the outlook for the world’s two largest economies, but also workers and consumers in third countries and the global economy at large.
The Xi-Trump meeting, expected to take place on Nov 30, provides a chance to de-escalate bilateral tensions that have intensified over the past year. It is hoped that through this discussion, Xi and Trump can reach a consensus on a framework agreement that can help guide future talks and resolve the current dispute. Since Trump recently signaled that he would like to make a breakthrough with his Chinese counterpart during the summit, it’s likely that the leaders’ meeting would set a sound tone for a final way out for the two sides.
Despite the challenges to be overcome in putting the Sino-US relationship back on an even keel, there are good reasons to be optimistic that the two sides can steer away from the current course and avert drawing the world into a damaging trade war resulting in costs that no one could afford.
First, China’s economic interests are deeply entwined with the US and indeed every other major economy in the world. Recently, some observers have invoked the idea of an "economic iron curtain" descending between the world’s two largest economies, drawing parallels with the deterioration of relations between the US and the Soviet Union after World War II. However, this framing completely fails to capture the reality of China-US relations in today’s globalized economy.
In the late 1940s, the US and Soviet Union shared little in the way of bilateral trade and investment. By contrast, in our current age of deepening globalization, the US and China are bound by global value chains that enable increasingly sophisticated specialization and division of labor across borders. Given the densely woven links shared by China, the US and other trading partners, any attempts to force a "decoupling" of the world’s two largest economies would cause massive disruption and long-term economic damage to both countries and the global economy.
Leading international organizations have already revised growth forecasts for 2019 downward due to uncertainty over the economic recovery and impact of the ongoing Sino-US trade dispute. Any further escalation of the trade tensions would seriously threaten the fragile recovery of the world economy.
Second, despite frictions in the bilateral relationship, Trump and Xi have established a good rapport and friendly relationship with each other. Maintaining this personal bond can stabilize relations and help both sides to overcome their differences and come to a mutually beneficial agreement on a way forward. Given the central roles of both figures in their respective administrations and Trump’s unique governance style, this top-level "leadership diplomacy" is of particular importance and could hold the key to unlocking the current impasse.
Third, and arguably most important, China and the US still have enormous potential synergies to exploit through closer cooperation. A relationship "reset" would not only help avert more economic damage, but it could also open up avenues for deeper cooperation and mutual benefits. For example, there is great potential to expand Sino-US cooperation in infrastructure, particularly given the match between the Trump administration’s large-scale infrastructure plan and China’s financial resources and considerable experience in this field. It is also vital that the two sides work together if they are to address major transnational challenges, such as climate change, poverty alleviation and terrorism.
Given the high stakes at hand, China and the US have a responsibility to make significant efforts to put their bilateral relationship back on track. This should start with both countries accelerating the restructuring of their own economies, building on the foundation of domestic reforms to bring about a joint improvement in the trade imbalance.
For China, this means pressing forward with implementing policies to open up the economy, such as relaxing market entry requirements and offering a fair and open marketplace to the world. As President Xi said at the recent import expo in Shanghai, over the next 15 years, China is set to import $30 trillion (26.5 trillion euros; ￡23.5 trillion) worth of goods and $10 trillion in services. Further moves to boost imports should be made to benefit Chinese consumers and ensure that China’s market continues to be an engine for the global economy.
At the same time, the US should abandon biased policies that unfairly target China and artificially inflate the trade deficit, such as restrictions on high-tech exports to China. Lifting these restrictions could benefit both economies, supporting workers in the US and helping to reduce the trade deficit. According to a study by the Carnegie Endowment for International Peace, a third of the US trade deficit with China could be reduced by lifting export control to China to a level equivalent to France.
In addition to pursuing these changes at home, China and the US should also increase their support for global governance institutions. The G20 in particular has great promise to serve as an effective platform to facilitate cooperation between the two sides, helping them achieve shared objectives and contribute to global public good.
Reform of the multilateral trading system should be high on the agenda, to help strengthen the World Trade Organization and help avert any possibility of a slide back to 1930s-style protectionism. The G20 should also promote talks on how to deal with new technologies and forms of trade.
By working together through the G20, the US and China can help to build a new generation of global governance mechanisms to address key issues related to the traditional ones, like global warming and WTO deadlock, and emerging ones, such as digital economy and automation in the new era, helping to ensure that all can benefit from these innovations and societies around the world are ready for dramatic shifts in the way we work and interact.
It is said that Buenos Aires (translated as "fair winds") was named by sailors arriving on the Rio de la Plata, blessed by good winds. This week, the city may just provide the breath of fresh air necessary to help world leaders chart a new course forward.
Dr. Wang Huiyao, founder and president of the Center for China and Globalization(CCG), an independent think tank based in Beijing.