G20 Summit in Osaka: What’s in Store?

Digitalisation of economy, innovation led growth & marine waste management will be priority areas at the summit.

Donald Trump and Xi Jinping

(Photo: Altered by the Quint)

The 14th G20 Summit is round the corner and media is abuzz with speculations of how the ongoing US-China trade war might impact discussions at the upcoming summit.

In the last summit in Buenos Aires, a 90-day temporary truce was achieved during the Xi-Trump-dinner discussion at the G20. The negotiations, however, reached nowhere after Beijing failed to agree upon the core reform demands proposed by Washington. Doubts have also been raised about China’s new Foreign Investment Laws (FILs) and its commitment to WTO standards since China has frequently tweaked the WTO rules to favour its State-Owned Enterprises (SOEs).

Earlier this month President Trump, while expressing his optimism about meeting with President Xi at the Osaka summit and to break the impasse over tariffs between the two countries, unambiguously stated his readiness to do otherwise if the agreement fails.

In a new threat to Beijing, the Trump administration has vouched to levy additional tariffs on Chinese products worth 300 US billion dollars, raising the duty from 40 to 60 percent. However, Beijing’s recent confirmation to meet and discuss the tariff issue with Washington in Japan has abated some of these tensions, at least temporarily.

The key question: What Next? therefore stares the G20 leaders in the face. More significant is the low level of expectations that prevail among the members who fear a worsening of trade tensions between the two economic giants.

G20 & the Liberal International Order

The G20 which traces its origins to the late 1990s, was created with the objective of stabilising world economy by upholding the principles of a liberal international order. The idea was to create a forum which would share fairly consensual views on major issues of global governance, play the role of “responsible stakeholders” in the times of a meltdown/crisis and strengthen the working of the WTO. It rose to prominence after successful coordination of the global economic affairs after the 2008-2009 financial crisis.

G20, as it evolved, became a much talked about economic forum owing to the character and membership. It overcame the narrow interests of the G7 nations and prioritised collective welfare, representing broadly the needs of developed as well as developing member states.

A few instances from WTO Ministerial clearly show the active role played by G20 in arriving at an agreement on key trade related issues. For example, in the run-up to the Hong Kong Ministerial in 2003, the joint draft on trade-distorting subsidies prepared by the US and the European community met with serious criticism from the G20, which demanded the complete elimination of a particular kind of domestic support programmes (blue box subsidies) and a strict capping on the others.

It upgraded itself from being a gathering of Finance Ministers and Central Bank Governors to the Leaders’ Summit in 2008. Committing itself to the 2030 Sustainable Development Goals of the United Nations, the group adopted the Action Plan at the 2016 Summit in Hangzhou.

Notwithstanding such transformation, the group today faces backlash over a range of issues, ranging from Brexit, to the US-China trade war, debt problems of member nations, and America’s increasing disengagement with the WTO. Even before the world economy could fully recover from the effects of the global financial crisis, new challenges popped up for the group, which threaten to render it obsolete and meaningless.

Significance of Japan as the First G20 President

The Japanese presidency comes at a time when the global economy is experiencing a slowdown and the rise in populist policies across the world is undermining the credibility of the multilateral system. Adding to the gloom is the fresh warnings issued recently by the IMF that the continuation of the Sino-US trade dispute could cut global economic output by 0.5 percent in 2020.

Not that the G20 members are unfamiliar with these downward trends in the world economy. They, however, lack the political will to steer the global economy through these challenges and to resolve the crisis facing the multilateral trading and financial institutions.

The 2019 G20 process kicked off with Agriculture Ministers’ Meeting on 11-12 May in Niigata City, Japan. Around eight ministerial meetings are scheduled to take place alongside the 2019 G20 Leaders’ Summit, covering issues like agriculture, finance and central banking, trade and digital economy, energy and environment, labour and employment, health, tourism, and foreign affairs. While four meetings precede the Leaders’ Summit on 28-29 June, four others are slated to be held after the annual summit.

Although Japan has not announced the theme or agenda of the annual summit yet, analysts believe that it will mostly be a continuation of issues from the previous summits, mainly pertaining to the structural factors influencing global economic imbalances, and the areas linked to the SDGs.

Among the new topics, digitalisation of the economy, innovation led growth, marine waste management will constitute priority areas for this year’s G20 summit.

These areas, which are steps towards the Industrial Revolution 4.0, dominated the conversation during the G20 Trade Ministers and Digital Economy Ministers meeting on 8-9 June.

In this regard, the Japanese model can also provide useful insights to the G20 members about the benefits offered by technological revolution towards creating an inclusive and innovative digital society.

Is Headway in Trade War Possible?

Looking at the geo-strategic environment, while it will be difficult to keep the protectionist impulses of the G20 members, especially the United States in check, a minimum common ground remains a possibility at Osaka. This can be partly attributed to Trump’s latest decision to suspend tariff plans for Mexico after an agreement on migration was reached.

In case of US-China trade war, however, an agreement is highly unlikely and no amount of pressure by Washington would be able to extract concessions from China as desired. Also, trade analysts often refer to Trump’s aggressive cracking down on Chinese telecommunications giant Huawei as “an act of haste” which disrupted the firm’s suppliers’ chain spread across the US and the world.

Worse, Trump’s national security justification for slapping tariffs on China is already hurting the American economy by slowing its exports, increasing stock market volatility index (VIX) and injecting fear among the investors.

The trade conflict has created a divide – US and China on one side and rest of the G20 members on the other. While the current G20 does not portend much hope for “fighting protectionism”, it will certainly resist from getting entangled in the trade conflict.

Also, it is likely to exert pressure on Washington and Beijing to diffuse the bilateral tensions.

Evidence from the recently concluded G20 Trade Ministers Meeting in Tsukuba strongly suggest a growing sense to turn the attention of the Osaka meet towards new issues which can represent some broad consensus and lead to the formulation of new agendas.

Taking into account the challenges and limitations facing the G20, it’s time for the group to reflect on its foundational commitments, overcome the interest-based approach of the elites and work towards creating an inclusive, sustainable public goods system.

The inertia setting within the group, if not reversed or controlled, can seriously damage G20’s credibility in the coming years.

From a diplomatic standpoint, 2019 is also an important year for both US and Chin as it marks 40 years of the Sino-US relationship. It can thus be hoped that the two countries would attempt for normalisation of trade tensions through “a new set of understandings”. This can either be through extension of negotiation period or by reaching a minimum common ground on less thorny issues, leaving the tariffs frozen at the current level.

(The author is a is a Research Fellow at the Indian Council of World Affairs, New Delhi. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)