The biggest concern is politics. The political environment for managing growing economic risks is toxic. Since 2008, the United States has switched from promoting multilateralism, cooperation, global rules and global institutions to undermining them. Many G20 countries are political shadows of their former selves. The domestic political strength of the leaders of the United Kingdom, Germany, France, Italy, Canada, South Africa, Argentina and many others has been replaced with a deep grassroots backlash against globalisation and global cooperation.
The concern is not that a fire could break out, it is that the fire department is nowhere to be seen. The world desperately needs to mobilise the G20 to deal with the big risks and challenges facing the world economy. As Shiro Armstrong notes, ‘the G20 has been less effective during “peace” times but make no mistake, the global trading system is now in crisis’. Luckily, Argentina’s 2018 G20 host year has given leaders an opening to do just that.
Through the commitment from leaders last year, Argentina’s host year has provided the opportunity to bring the World Trade Organization up to date. Delivering an outcome on WTO reform will not only address the most pressing challenge facing the world economy today, it will also reinvigorate the G20 and show that the forum is still capable of delivering substantive outcomes. Achieving this will require ambition and an effective strategy.
But is Japan up to the task?
G20 countries, particularly Japan, need to come to grips with their national interest in a strong G20. Few G20 countries do well in bilateral deals with the superpowers, including the superpowers themselves. This means all G20 countries have a strong national interest in multilateralism. These countries do best when the world comes together to agree collectively on the rules for trade, investment, finance, people-to-people links and dispute resolution and therefore have a paramount self-interest in a strong, effective G20.
Recognising collective self-interest in the G20 means that countries form the coalition needed to nudge the reform of the WTO forward, updating global trading rules.
Coalitions have already started to form. Indonesia has emerged as a global leader in the G20 this year in pushing for substantive WTO reform. Indonesia is joined by Australia and other countries in the region who are similarly eager to see progress on WTO reform, giving Japan both the incentive and the means to deliver substantive outcomes next weekend.
But will Japan take the easy way out? Rather than pushing for ambitious outcomes on trade at the G20, is it more likely to stick with its low-target strategy of placating the United States and avoiding anything that may cause Trump discomfort in the flimsy hope that the United States will not put tariffs on Japan’s automobile industry.
This would be a mistake. Japan, perhaps more than any other G20 country, has multilateralism and an open trading system in its DNA, with strong national interests to protect both. Prime Minister Abe’s ‘charm offensive’ against Trump — gold plated golf clubs, meetings with the new Emperor, front-row tickets to the sumo wrestling — is a strategy which relies on an inherently unpredictable US president. Indian Prime Minister Modi pursued a similar strategy and indeed, President Trump had plenty of nice things to say about him too, including right before he increased tariffs on 2,000 Indian exports to the United States. Modi has since retaliated. So much for the charm offensive.
A low-ambition strategy from Japan at the summit means acceptance of the notion that the best hope is a bilateral deal between China and the US which will divert trade from Australia and other Asian economies and move us to a world of managed trade. It will move us away from freer markets, will sideline the WTO and weaken some of its core functions that hold global trade together. A bilateral deal between the US and China, Armstrong warns, is ‘anathema to Australian and Asian interests’.
Worse still, a low ambition strategy from Japan will miss a crucial opportunity. It is an opportunity to put the brakes on the world’s dangerous slide towards unilateralism, protectionism and conflict. The forecast negative GDP impacts of the US–China trade war are significant but fail to grasp the even more important long-term damage being done to the rules, confidence and predictability that businesses and households rely on for cross-border investment, trade, finance and commerce. As Fukunari Kimura asserts, ‘a new trading “regime” that will be dominated by power politics’ is just over the horizon. The damage on global incomes and productivity will be felt for decades to come.
The wave of anti-globalisation sentiment sweeping across the world threatens the very core of the G20’s existence. The cause of this sentiment is deep, structural inadequacies of domestic policy frameworks and safety nets. This threatens the pillars on which prosperity and security have been built: trade, investment, the movement of people and multilateral cooperation.
Delivering substantive results at the G20 in Osaka through setting the strategic direction for reforming the WTO and global trading rules will defuse trade tensions. It will remind the world of the importance of cooperation and the value that can be delivered when countries work together in pursuit of their common national interests. The opportunity is Japan’s to make a real difference. Its simple job is to not drop the ball.
And on China
Today we launch our next issue of East Asia Forum Quarterly (EAFQ) on ‘Chinese Realities’.
The global debate on China is becoming more polarised. Is the Chinese economy robust or on the brink of collapse? Does the concentration of power in the hands of President Xi reflect a weaker or more confident China? Will the trade war set China’s reform backwards? Is the Belt and Road Initiative a platform for improving global infrastructure or a strategy to make developing countries more dependent on China? And is Beijing succeeding in its overseas influence campaign or has China’s global influence diminished in the face of a backlash?
Simple binaries such as these can obscure the messy reality of China and its place in the world. In this special issue of EAFQ, experts from within and outside China force us to confront the complicated, evolving and often contradictory forces shaping Chinese society, politics, economics and global affairs.
In our double feature lead this week, Cai Fang argues that ‘what has happened in trade relations between the [United States and China] is not going to alter the course of Chinese policymakers, and there is no reason to expect a holding back or reversal of China’s reform agenda’.
The Asian Review feature explores the links between Korean pop scandals and chauvinist culture; the birth of a new era in Japan; and India’s ambitions for a multipolar world.
The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.