G20 Summit Osaka: trade meets geopolitics
Today and Saturday (28-29 June 2019), Japan will host the G20 leaders’ summit in Osaka. The purpose of the G20 when it was founded after the GFC in 2008, and these summits, is for leaders to work together to deliver ‘strong, sustainable, balanced and inclusive growth’. This is a big task given the current geopolitical climate. There are plenty of very real issues to discuss, and Japanese Prime Minister Abe has set a meaningful agenda. However, Japan will need great strength of character if it wants to deliver ambitious outcomes. And all of this is being once again overshadowed by slated bilateral talks between Chinese President Xi Jinping and US President Donald Trump on the margins of the summit. The outcomes of those talks certainly matter, but it is critical that the world is not so distracted by the Xi/Trump meeting that we fail to attend to all the other issues as well.
So, let’s turn to the Xi/Trump meeting first. Basically, as American baseball player Yogi Berra put it, “it’s déjà vu all over again”. We are facing a similar situation to that of the G20 leaders’ summit in Buenos Aires in December last year. There are, again, three main options: a) a real deal; b) another détente allowing space for the resumption of negotiations; c) a failed meeting and the US increasing tariffs and China retaliating in some form, including further tariffs of its own.
There are a few differences this time around, however. This time, the stakes are higher. This time we’re looking at 25% of tariffs being extended from the existing USD200 billion of Chinese exports into the US to the remaining approximately USD300 billion, which both KPMG Australia modelling and Lowy Institute research show has serious implications for the global economy. In terms of timing, we’re getting a bit closer to the US Presidential elections, which may make some difference in President Trump’s calculations. In terms of tone, both sides are increasingly determined to protect their positions. In the US, the ‘deep state’ is resolute that China’s economic policies must accord to international rules. China’s white paper released in September last year explicated its position regarding US criticisms.
While both leaders have incentives to put the trade dispute behind them, given the broader political challenges both face domestically the likelihood is the best outcome will be b), a détente, hope for a more comprehensive deal before too long.
The Xi/Trump meeting aside, Japanese Prime Minister Abe has three key issues on the Osaka G20 agenda.
Firstly, to strengthen the international order for free and fair trade, with finalising the Regional Comprehensive Economic Partnership (RCEP) as a primary step, ideally by the end of this year. Also on Abe’s agenda is addressing the unforeseen challenges of the digital economy, such as progressing the discussion on taxation of the digitalised economy. Abe is promoting a rules-based system of ‘Data Free Flow with Trust’ (DFFT) to allow the benefits of the digital economy to be shared globally.
The third major issue Abe has put on the table is how to use disruptive innovation to tackle global environmental challenges, for example, using CO2 as a resource.
Another issue Japan has identified where the G20 could set the global agenda is establishing shared principles for quality infrastructure investment, which could cover issues such as governance, social and environmental protections, and debt sustainability. All G20 finance ministers endorsed these principles in their June communique. International cooperation on global health, ageing, cryptocurrencies and tax avoidance are also Japanese priorities for this G20 summit.
These are worthy goals. To make them genuinely useful, two elements are necessary (although not necessarily sufficient).
Firstly, G20 leaders need to get specific. Abe notes that his first two agenda items, trade and data, are inseparable from World Trade Organisation (WTO) reform. He argues that the world has changed at amazing speed since the WTO was established, but the institution has failed to keep up. He asks, “what should we do to make the WTO relevant again?” Good question. Some analysts point to fixing the dispute-settlement mechanism and requiring greater transparency around trade-distorting policies like subsidies. The goal should be for trade ministers to reach agreement by the next WTO ministerial meeting in June 2020 in Kazakhstan.
Also necessary, and perhaps more challenging, is a sense of shared purpose and pursuit of the global good among G20 leaders. The current geopolitical climate is not conducive to cooperation. Players well-recognised for their powerful promotion of multilateralism and global institutions now undermine them. Many G20 countries face a backlash in their populations against globalisation and global cooperation. However, coalitions for progress are forming. For example, Indonesia along with Australia and others in the region are pushing hard for substantive WTO reform.
The G20’s goals of ‘strong, sustainable, balanced and inclusive growth’ are critical in a time where, as IMF head Christine Lagarde has called it, the current global economic outlook is “fragile” and potential for recovery “precarious”. G20 leaders must focus firmly on the greater good, recognising that ultimately, this is the way to achieve their own interests. Japan needs to remain ambitious and globally focused to take advantage of this opportunity to turn unilateralism, protectionism, and lack of trust, in a more positive direction.