07 Nov 2018
Now the curtain has come down on a melodramatic G20 summit in Buenos Aires it is clear the process of globalisation, the continued lowering of trade barriers and the stimulus given to the development of supply chains globally has hit a speed bump.
Attention may have focused on a dinner negotiation between President Donald Trump and his Chinese counterpart Xi Jinping to ease tensions in a US-China trading relationship but the G20 itself was left drifting on further trade liberalisation.
" In a global trading system, protectionism begets protectionism in what risks being a beggar-thy-neighbour race to the bottom.”
This is not good news for a trading nation like Australia - dependent on open markets and a continued lessening of trade barriers.
In a global trading system, protectionism begets protectionism in what risks being a beggar-thy-neighbour race to the bottom.
Since the first G20 in 2008 - at the height of the Global Financial Crisis - a commitment by leaders of the world’s largest economies to fight protectionism and engage in the painstaking work of reducing tariff and non-tariff trade barriers has been a staple.
Not this year. Under the weight of an American veto of language in the leaders’ final communique dealing with protectionism in its various guises the commitment lapsed.
If we go back over the 10 G20 communiques prior to this year, starting with the Washington Declaration in 2008, we find a robust, multilateral commitment to lessen trade barriers and fight protectionism has been a central feature of these declarations.
In 2008, in the midst of a global financial crisis that was threatening to bring the financial system crashing down, leaders reaffirmed their commitment to lowering trade barriers:
“We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports.”
The Washington Declaration also reaffirmed a strong commitment to advancing the Doha Round of trade liberalisation. Trade ministers were instructed to redouble their efforts to bring about a conclusion of the Doha negotiations.
Ten years later the Doha process remains in cold storage.
In all of this, it is instructive to examine G20 communiques issued in each of the two years preceding 2018. In both cases there was no lessening of a commitment to fight protectionism.
In Hangzhou in 2016 and Hamburg 2017, language was unequivocal. In Hangzhou, leaders reiterated their “opposition to protectionism in all its forms.’’ In Hamburg, they pledged to “continue to fight protectionism including all unfair trade practices’’.
In Buenos Aires there was no such endorsement of a need to combat protectionism as part of the process of globalisation that has helped lift billions out of poverty.
Rather, leaders, under pressure from United States in the drafting of the final communique, did not mention “protectionism’’ at all, instead satisfying themselves with an anodyne reference to the benefits of world trade:
“International trade and investment are important engines of growth, productivity, innovation, job creation and development. We recognise the contribution that the multilateral trading system has made to that. The current system is falling short of its objectives and there is room for improvement. We therefore support the necessary reform of the WTO to improve its functioning.”
Buenos Aires proved to be a further example of a disappointing multilateral outcome on top of failure to achieve consensus on reducing trade barriers at a bad-tempered G7 meeting in Canada in June.
An Asia Pacific Economic Cooperation summit in Port Moresby last month omitted to endorse a leaders’ communique for the first time in its history. The issue again was trade.
The US and China were at odds over wording dealing with the World Trade Organisation. Among US objections is the continued designation of China as a developing country with trading benefits that accrue to less developed countries under WTO rules.
In Buenos Aires those differences were papered over with reference to the need to improve the WTO’s “functioning’’.
While most attention in the Argentine capital focused on a temporary truce achieved by Trump and Xi in a US-China trade dispute, a more lasting consequence may be an emphatic end to an era in which a global consensus prevailed over continuing effort to bring down trade barriers and strengthen global supply chains.
The election of Donald Trump in 2016 on a platform antagonistic to a continued process of trade liberalization, against a background of rising populism across the globe, has cast a shadow over further trade liberalisation within a multilateral trading system.
America’s withdrawal from the Trans Pacific Partnership, in which Australia has been a prime mover, was an early and bad sign.
The stakes involved at these G20 summits were well put by David Gruen, Australia’s representative in preparations for the gathering in Buenos Aires. In a speech to the Lowy Institute, Gruen identified the effective collapse of G7 deliberations at Charlevoix in June as ‘’not a good omen’’ for a world trading system under stress.
“We no longer live in a world where all the major countries accept key multilateral agreements and institutions – the Paris Agreement, Sustainable Development Goals, and the WTO,’’ he said.
“We have taken broad support for these institutions and mechanisms for granted and a loss of that support is confronting.’’
That might be regarded as an understatement.
Gruen went on to observe that Australia’s prosperity had been built on “access to an open rules-based global economy’’. The country’s 27 years of uninterrupted growth had rested on a gradual relaxation of tariff and non-tariff barriers in a process that gathered momentum under the Uruguay round and was meant to have been given further impetus by the Doha process.
Multilateralism was designed to benefit the world’s trading nations collectively.
What we witnessed in Buenos Aires, however, was self-interest in action where representatives of the G2 (the US and China) engaged in separate deal-making on the margins of the G20 leaving other participants to make up the numbers.
While it is highly desirable for a global trading system – and Australia in particular – for trade tensions to be lessened between the world’s two largest economies, the downside is that a game of trade brinkmanship does little for a stable trading environment.
An America First mindset means that for the time being US leadership in a continuing process of trade liberalisation will be compromised. America has traditionally been a forceful advocate for its own self-interest but it has also acknowledged its leadership role in preserving a rule-based international trading system.
In this latest period it would be hard to make that claim on Washington’s behalf.
At Charlevoix and in Port Moresby, Washington sought to bend - or disrupt - outcomes beyond what might be regarded as those corresponding with its own self-interest.
At the APEC summit in Port Moresby, China pushed back, understandably, where Xi warned countries that embraced protectionism were “doomed to failure’’.
This statement was clearly aimed at the US.
In Buenos Aires the US and China negotiated a temporary truce with a 90-day stay-of-execution by the US on the escalation of tariffs on Chinese imports.
Given the complexities of the issues that divide the two countries, including tensions over Chinese assertiveness in the South China Sea, such a truce is unlikely to last with negative consequences for a global trading system already under stress.
Tony Walker is a bluenotes contributor, former Financial Times correspondent in China and former Australian Financial Review political editor
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
07 Nov 2018
11 Oct 2018