The importance of the upcoming G20 summit, held this weekend in Osaka, Japan, is being highlighted by the current global mood of economic crises.
Concern about protectionism was clear at the organisation’s last meeting at the end of November 2018. Those concerns continue to heighten, with the escalating US-China trade war and the slowing of global growth.
Some of the world’s leading economists are now warning of global recession risks in 2020. One of these is Nouriel Roubini, sometimes nicknamed Dr Doom, who accurately belled the cat on the US mortgage crisis that precipitated the Global Financial Crisis (or Great Recession) of 2007-2008.
In a June 14 piece for Project Syndicate, Roubini noted that nine out of 10 conditions for a global recession remained in play.
Many involve the United States. Trade wars with China and other countries, along with restrictions on migration, foreign direct investment, and technology transfers, could have profound implications for global supply chains, raising the threat of stagflation (slowing growth alongside rising inflation). And the risk of a US growth slowdown has become more acute now that the stimulus from the 2017 tax legislation has run its course.
“Global growth in 2019 is expected to slow to 2.6%, reflecting weaker-than-expected trade and investment at the start of the year,” the World Bank said in its June Global Economic Prospects report, adding that risks are firmly on the downside “in part reflecting the possibility of a further escalation of trade tensions”.
What will happen at the G20?
Formed in 1999, the G20 is shorthand for a mix of the group of the world’s 19 largest advanced and developing world economies, plus the European Union. It represents about two-thirds of the world’s population, 85% of global GDP and over 75% of global trade. The presidency rotates and the leader’s summit is the culmination of a series of ministerial meetings with trade, economy and climate among the more important.
Most leaders use the event to have bilateral meetings on the sidelines of the conference. The now confirmed meeting between President of the People’s Repulic of China, Xi Jinping, and US President Donald Trump will be the key event the week. The two will try and prevent a further escalation of a tariff war that is already impacting the world’s top two economies as well as the global outlook.
What outcomes might there be?
The US-China trade war highlights a worrying trend away from multilateralism towards the bilateral trade arrangement. This means the meeting has taken on greater importance given the growing concerns over the World Trade Organisation’s effectiveness. Trump has described the formation of the WTO as “the single worst trade deal ever made”.
Any deal between the US and China while desired would be bilateral — and could be less than desirable if it is a clear break from the multilateral trade that is supported by Australia and other major regional economies including Indonesia and India. Most observers believe a truce over a further escalation, for now, is the best possible outcome.
Major themes include removing structural impediments to growth, reforming the global trading system, adapting the world economy to the data revolution, combating climate change and plastics pollution, adjusting employment policy to reflect aging societies, empowering women in the workforce, advancing sustainable development and achieving universal health coverage.
It is also Xi’s first visit to Japan as leader — he made the trip as vice president in 2009 — and the first by a Chinese leader Since Hu Jintao attended the 2010 APEC meeting in Yokohama; Xi will meet with Japanese Prime Minister Shinzō Abe, also an important meeting between the ancient rival nations.
One thing unlikely to be discussed are the anti-extradition bill protests that have roiled Hong Kong in recent weeks, bringing as many as two million people onto the streets in protest.
“We will not allow Hong Kong issues to be discussed at the G20 summit,” said Chinese Assistant Minister of Foreign Affairs, Zhang Jun
Hong Kong is China’s special administrative region. Hong Kong matters are purely an internal affair due China. No foreign country has a right to interfere. No matter at what venue, using any method, we will not permit any country or person to interfere in China’s internal affairs.
What should Australians be watching for?
Apart from the big Xi and Trump show, it’s Prime Minister Scott Morrison’s first big summit with his own mandate. He is expected to meet a number of other leaders at the meeting including Trump. Australians and other leaders will be watching his performance on the big global stage after an unconvincing turn in Buenos Aires.
The Xi/Trump and Xi/Abe meetings see Australia’s top three trading partners all in action, so are important to Australia but any further shift away from multilateralism would spook an increasingly fragile Australian economy.
So does it make any practical difference?
It can, if its members are committed as they were in 2009 at the meeting in London — agreeing fiscal stimulus packages worth US$5 trillion in response to the financial crisis with central banks, including the Reserve Bank of Australia, agreed to aggressively cut interest rates. The following year, spooked by the European debt crisis many countries agreed to slash their deficits.
Adam Triggs, an economist and research fellow at the Australian National University conducted interviews with dozens of world leaders about the efficacy of the G20 and came to this conclusion in a 2018 piece for The Conversation:
…if commentators complain about the G20 being a pointless talkfest, just remember there is evidence to the contrary. It might not grab the headlines but the G20 plays an important role behind the scenes. We will be relying on it now, more than ever, to calm global tensions.
But Triggs also warned that big countries are less influenced by the G20 than small ones are, and with the US-China trade war front and centre, it is really up to Xi and Trump to try and sort out a deal — as troubling as that may be for multilateral trade. The G20 is giving them a forum where they must be in the same place and has thus, at least, facilitated a meeting.