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Opinion » Comment

Posted at: Dec 6, 2018, 12:06 AM; last updated: Dec 6, 2018, 12:06 AM (IST)

Chinese shadow on rich club’s supremacy

Jayshree Sengupta

Jayshree Sengupta
The G20 Communique is a weak one regarding trade because it lacks any reference to risks of protectionism which was highlighted at the BRICS meeting on the sidelines of the G20 summit.
Chinese shadow on rich club’s supremacy
G20: The Communique echoes Trump''s words regarding the need to reform the WTO.

Jayshree Sengupta

Senior fellow, ORF

The recent 13th G20 summit in Buenos Aires was a success because at least it managed to issue a joint Communiqué, unlike in the case of the APEC summit which took place in Papua New Guinea in October when the two economic giants, the US and China, did not agree on a joint communique. Also, in the case of the G7 summit in June, President Trump withdrew his signature from the joint communique.  On the whole, this year's G20 meeting and its Communique confirmed the supremacy of the G7 or the rich countries in the group, but with China challenging their supremacy.

Created as an offset of the G-7 in 1999, it remains a rich countries' club where half the members are from rich advanced countries (the US, the UK, Japan, France, Canada, Australia, Germany, Russia, Italy and the EU) and the other half are emerging market economies (China, Indonesia, Turkey, Brazil, India, South Korea, Argentina, South Africa, Saudi Arabia and Mexico). The first G20 summit was held 10 years ago to alleviate and find workable solutions to the global financial crisis. This year's summit was held to discuss sustainable agriculture, infrastructure for development and future of work.

Trump dominates meeting

The volatile US President, Donald Trump, dominated this year’s meeting. The Communique echoed Trump's words regarding the need to reform the WTO and the world trading system. It is a weak communique regarding trade because it lacks any reference to risks of protectionism which was highlighted at the BRICS meeting on the sidelines of the G20 summit. 

At his meeting with President Xi Jinping on December 1, Trump agreed to have a 90-day halt on tariff escalation planned from January 2019. China agreed to buy 'substantial amounts' of agricultural and industrial exports from the US to reduce its trade deficit. Trump promised not to raise tariffs on goods imported from China during this period. The US had intended to raise tariffs on $250 billion of Chinese goods from 10 to 25 per cent from January. He also threatened to impose levies on $267 billion of goods from China covering all imports and $200 billion in new tariffs.

The trade war has so far not brought about any changes in China's economic policies. It has actually increased the American trade deficit with China. But it has slowed down China's industrial growth. There is a slowdown in the growth of important sectors such as rail freight usage, bank lending and electrical consumption from 11 per cent last year to nine per cent this year. It has led to US farmers suffering from the retaliatory increase in duties on soybean exports to China. The US stock markets and oil prices have also fallen in part on fears that China will buy fewer goods.

WTO working criticised

The commitment by the biggest economies that represent 85 per cent of the world economic output to trade and a “rules-based international order” has remained intact, but the calling for WTO reforms was undertaken at US’ behest. The G20 Communique, for the first time, criticised the working of the WTO by saying “it (WTO) is failing to meet its objectives and needs reforms. We renew our commitment to work together to improve a rules-based international order that is capable of effectively responding to a rapidly changing world.” The US objected to the reference to a rules-based order because in the current system, China has got away with unfair trading policies.

It would be difficult for G20 to undertake reform for the WTO because in the past it has not been able to reform the International Financial Architecture or the IMF quota system by which the developed countries have a lion's share (63 per cent) of quotas as compared to the global south. A lower quota means lower access to IMF loans. The US has the highest quota of 17.7 per cent, India has 2.75 per cent and China six per cent.

Today, the 20 countries have a different identity than when G20 was founded. Intended to be setting a framework for global governance, it has become a stage for an increasing number of authoritarian and populist leaders. 

Modi meets Saudi Prince

This year, the controversial presence of Prince Salman bin Mohammad of Saudi Arabia created a stir. The delegation was the first to arrive in Buenos Aires in six planes. Despite the controversy surrounding the Prince regarding the murder of dissident journalist Jamal Khashoggi in Istanbul's Saudi Arabian embassy, Russian Prime Minister Vladimir Putin and Prime Minister Modi met him. Modi’s imminent concern regarding oil supply from Saudi Arabia and its investments in India is understandable. Also, Modi has made a suggestion for coordinated action regarding fugitive economic offenders like Vijay Malaya and Nirav Modi. Modi’s meeting with Japanese Prime Minister Shinzo Abe and President Trump was also successful’. It was a good occasion for the three countries worried about China’s rise to come together and work out a strategy. 

The G20 summits come at a great cost, especially for a country like Argentina which is still reeling under high inflation and an austerity drive. Its currency (peso) plunged against the dollar in April due to rise in US interest rates and fleeing FIIs. Its dollar debts became too expensive and it had to go to the IMF for a $50-billion loan.

Is hosting the G20 summit a showboating exercise or does it resolve any global problems? For the US, it didn't mean much  expenditure as Trump brought in 10 aircraft and a US Navy vessel, three surveillance aircraft and three refuelling aircraft involved in monitoring Buenos Aires while emergency cyber-intelligence support was provided by the US Department of Homeland Security.

For Argentinian President, it must have been an ordeal. The government had asked Buenos Aires residents to go for a weekend because it wanted less people around, but many refused to leave because for them daily wages are important.  President Mauricio Macri has succeeded in hosting a G20 summit without the violence that accompanied the last G20 summit in Hamburg. But Macri had to employ 22,000 security agents for the vast security operation. 

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