G20: Missing in Action on Trade
07 Mar 2016
This opinion piece was originally published on The Lowy Interpreter on Monday, 7 March 2016.
Last month’s Shanghai meeting gave more ammunition to critics of the Group of 20. Its meagre outcomes bolstered the argument that while the G20 was extraordinarily successful in spurring the decisive and coordinated international action necessary to survive the global financial crisis, its post-crisis role is much diminished.
Shanghai’s formal agreement went scarcely beyond a vague recommitment to target growth, a glaring illustration of this problem. The most glowing praise of the event went to the pledge by the Chinese hosts to communicate their currency strategies more clearly in the future – hardly the kind of coordinated decision-making the forum was designed for.
No wonder then that critics of the G20 are growing in number and volume. Ed Balls is among them, describing the event as a 'damp squib' and drawing parallels between the complacency of the forum today and the dithering that characterised the first few years of the Great Depression.
He’s right to argue there’s no room for indecisiveness given the headwinds in the global economic outlook. The effects of an already subdued recovery in advanced economies, China’s rebalancing, and generally diminished growth prospects in emerging and low-income economies have been compounded by recent market turbulence and falling asset prices. This led to the IMF warning the G20 of the heightened risks of economic derailment, at a moment when we are already highly vulnerable to adverse shocks.
Three things make the G20 so feeble at this crucial juncture for the global economy.
The first is its divisions over the role of fiscal policy. Australia and Germany were just two notable opponents of a more active and coordinated role for fiscal policy, ignoring IMF chief Christine Lagarde’s calls to 'go bold', 'go broad' and 'go together'.
With the departure from the stage of many big GFC-era figures who believed in pulling the fiscal policy lever, like Gordon Brown, so too has the G20 retreated into old ideological, national and historical divisions.
This is particularly disappointing at a time of secular stagnation, when monetary policy has been rendered so ineffective. This is the second reason for the G20’s growing impotence – relying too heavily on monetary policy which lacks firepower. While Japan’s foray into negative rates has had negligible effect so far, even those economies with room to move would best heed Bank of England Governor Mark Carney’s admission that central bankers cannot go it alone and will need the assistance of governments.
Third, and related to the first two, is the problem of co-opting the G20 for domestic partisan arguments or to justify policies not supported at home. When Joe Hockey and Tony Abbott lectured global leaders about Medicare co-payments and university fees at the world’s peak economic forum, it was the most egregious, but alas by no means only, example of this problem.
At a challenging time for the global economy we can’t have the leaders of 85 per cent of the world’s GDP bickering over fiscal policy, leaning excessively on ineffective monetary policy, or misusing the forum for domestic political ends.
Just as importantly, we cannot continue to see inaction on trade, which garnered little more than a namecheck in the most recent communique despite the growing importance of global flows in most developed economies.
Perversely, this wain in action on trade has occurred at a time when global attention is most needed. The value of world trade fell 13.8 per cent last year – more than at any time since the GFC. And while a lot of that is down to falling commodity prices, trade volume has remained disappointingly sluggish since at least 2012 as well.
Among the many disappointments in recent G20 presidencies has been the apathy and inaction while the world slowly rebuilds trade walls. In the first ten months of 2015, Governments introduced 539 protectionist measures, up 30% on 2014, and almost triple the level in 2012. G20 economies are even more guilty than most. Global Trade Alert estimates that at least 70% of the protectionist measures introduced since 2008 were implemented by G20 members.
It needn’t have been like this. In Toronto in 2010, President Obama and others had some success in resisting the protectionist urges of damaged economies. This was indeed one of the triumphs of that period but unfortunately it was not to last.
For the G20 to rebuild its credibility as the world’s premier economic coordinator and thought-leader, it must address the growing deficiencies in world trade as a matter of priority.
The need to put multilateral trade at the top of its agenda is even more pressing now than it was at Brisbane in 2014. The abandonment of the long-stalled Doha round should not mean the dumping of further attempts for multilateral progress, and the G20 should lead by example on much-needed reforms.
At the very least, G20 economies should commit to ambitious progress on bilateral and plurilateral trade agreements, not as an end in itself but as a stepping stone to greater international trade liberalisation. Good bilateral and regional agreements need not be a barrier to multilateral progress and the G20 should be illuminating the path forward.
The G20 has proven itself capable of significant action in the past and it’s well past time to do so again, especially given the challenges on the horizon. Every year the G20 fails to address the growing problems in international trade is a missed opportunity which adds firepower to the arguments of its critics.