Photo: Reuters/Carlos Barria

The last Group of Twenty summit in Argentina (November 30-December 1, 2018) was mostly a G2 in which US President Donald Trump and his Chinese counterpart Xi Jinping tried to end the trade war. At that meeting, the world was more interested in what the two leaders discussed and how they proposed to end the trade war, and thus brushed aside vital G20 items such as climate change.

However, things did not turn out as the two countries expected. Trump unexpectedly increased tariffs from 10% to 25% on US$200 billion worth of Chinese goods on May 10, saying Beijing had failed to meet its obligations. China shot back, accusing the US of “moving the goalposts” and imposing tit-for-tat tariffs on $60 billion worth of US products.

The trade war has become uglier since then: Trump has blocked Chinese telecom equipment from the US market and forced US technology firms to seek government approval to sell products to China. Additionally, the US blacklisted five Chinese supercomputer companies for, you guessed it, national-security reasons. The Asian giant did not stand idly by – it also planned to “blacklist” US firms deemed harmful to the country and other tit-for-tat measures. Indeed, China vowed to fight the US to the end.

The trade war also spilled over into the geopolitical sphere, with the US accusing China of imprisoning more than a million Uighurs in the far west autonomous region of Xinjiang. The US Africa Command director of intelligence complained that Chinese troops “harassed” American troops in Djibouti. These are just two items on a list of US accusations against China.

Had Trump and Xi not agreed to hold “an extended meeting” to negotiate an agreement to end the trade war in Osaka at the end June, trade and geopolitical relations between the world’s two largest economies would likely get really ugly. It seems Trump finally realizes his trade war and subsequent escalation of it have not produced the results he expected, although he has boasted that China is “begging” for a deal.

Read: Rumor of Chinese bank sanctions tumbles stocks

It seems that Trump may be succumbing to pressure from the business community to end the tariffs because they are “killing” investment and affecting consumption, putting the US economy on a downward trajectory – from 3.1% in 2018 to around 2.5% or less in 2019, according to most economic analysts and the World Bank. If the trade war continues, annual growth rates could drop below 2% in 2020 and beyond.

Furthermore, Trump himself might have a reason to end the trade war. With a presidential election just around the corner, he needs some economic news because no US president secured a second term after the economy tanked – the late George H W Bush was a case in point.

The US-China trade war also affected the world economy, thanks to the US-inspired global supply chain. Indeed, economies that are directly involved in the supply chain – Japan, South Korea, etc – are already seeing growth drop below 2%. Trade being 30% of global gross domestic product, distortions in the relationship between the world’s two largest trading nations and economies will reduce international investment, explaining why International Monetary Fund managing director Christine Lagarde has warned of a global recession if the trade conflicts are not resolved.

Because the US-China relationship affects the world economy and polity, the world might be more interested in the Trump-Xi talks than the G20 agenda itself, prompting some to predict that the supranational organization might fade into irrelevance. However, that might be an oversimplification – it could actually strengthen its role in addressing global issues.

Role of G20

It is, in fact, not in the interest of the G20 leaders to toe the US line or side with it to counter China’s rise. China is either the largest trade partner to most of the member countries, including the US, or important to their socioeconomic well-being. Australia, for example, cannot afford to alienate China totally because the Asian giant is the “hand that feeds it,” buying around 25% of its exports.

Dependence on the Chinese market is the biggest reason US allies – Australia, Japan, South Korea and the European Union – refuse to take sides: Doing so would harm their national interests. For example, South Korea saw its economy plunge when it agreed to host the US THAAD (Terminal High Altitude Area Defense) missile system.

As the 19th-century British statesman Lord Palmerston observed, nations do not have permanent allies or foes, only national interests. The G20 should be more proactive in promoting globalization or working with each other to address world economic, financial, geopolitical and environmental issues.

From this perspective, the G20 could emerge as more relevant, not less, as some analysts have claimed. That is, G20 leaders should and must focus on their national interests and worry about US sanctions or threats.

And if the G20 were to become irrelevant, it would not be attributed to the deteriorating US-China relationship, but to the vast differences between member nations. Within the G20, countries such as the US are highly developed while others, like India, are still in the development stage, creating conflicting interests.

If the G20 were to become irrelevant, it would not be attributed to the deteriorating US-China relationship, but to the vast differences between member nations

For example, India and other developing economies are not in a position to reduce greenhouse gas (GHG) emissions because they still rely on fossil fuel and wood for heating and cooking. The US, at least under Trump, withdrew from the Paris climate accord because of his “America First” policy, part of which was to revive coal and oil production. It could therefore be argued that the G20 was never effective in fulfilling its role as the world’s “savior.”

The Osaka summit presents an opportunity for the G20 leaders to play an important and relevant role in global affairs because it is in their national interests to do so. For example, promoting globalization would enhance and sustain their respective nations’ economic growth, thereby benefiting the less developed countries. Promoting peace would address the refugee issue.

Time for the G20 to step up.

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