Trade, global prosperity high on G20 agenda

Trade tensions loom large over what could be one of the most important G20 meetings in recent years.

The focus of the G20 Leaders’ Summit, which will be held on Friday and Saturday in Buenos Aires, the Argentine capital, will be the much-anticipated meeting on the sidelines between President Xi Jinping and his United States counterpart Donald Trump.

It will be the first time the two have met face-to-face since the trade conflict between the US and China escalated.

The US announced 10 percent tariffs on $200 billion worth of Chinese goods in September, and Trump on Tuesday reiterated his threat to raise the rate to 25 percent in the new year and hinted that other tariffs would be imposed.

China is hoping that the G20 Summit will play a similar role to the one in London in 2009 — which produced a concerted response to the global financial crisis — and steer the world away from a path toward protectionism.

Vice-Minister of Commerce Wang Shouwen said the unified approach demonstrated in London nearly a decade ago was needed now.

“At a time when global trade is facing challenges from protectionism, we hope the G20 members can also take collective actions against unilateralism and protectionism,” he said at a news briefing on Friday.

Shi Yinhong, professor of international relations at Renmin University in Beijing, said the best outcome from the summit would be some kind of truce in the trade conflict between the US and China.

“Both sides could suspend the high tariffs, or the Americans may agree not to enforce the new escalation of raising tariffs from 10 to 25 percent on $200 billion worth of Chinese goods in the new year.

“The very strict restrictions that the US is imposing on China’s high-tech sector will not end in the immediate future. This is part of the bigger concern that Trump and Americans have of China becoming a more technologically advanced country than the US,” Shi said.

Stephen Roach, a senior fellow at Yale University’s Jackson Institute for Global Affairs, believes China holds the stronger cards in any negotiation with the US.

“China ... has a lot of options. Unlike the United States, China never went to quantitative easing and zero interest rates, so there is plenty of scope for action on the monetary front. It also has fiscal space, which it used a little bit last month to provide some tax incentives for Chinese consumers. It also has currency leverage,” he said.

“The economy is also shifting away from relying on external demand for its exports toward internal domestic consumption.”

David Kelly, chief global strategist at JP Morgan Asset Management, also believes the US can ill afford a protracted trade war.

He predicts that US growth will fall to less than 3 percent in the fourth quarter and that the effects of Washington’s tax-cutting stimulus will begin to fade in the new year.

“The uncertainty caused by a protracted trade war could well slow investment spending further. An escalating trade war with China sits at the top of most lists of potential triggers for the next recession,” he said.

Taking a break

It is not only the two parties involved who will want to see some resolution of the tariffs issue.

It is also important for third-party countries such as the United Kingdom, whose Prime Minister, Theresa May, will be taking a break from selling her Brexit deal to attend the summit in Buenos Aires.

A report by the Centre for Economics and Business Research in London stated that tariffs placed by the US on Chinese goods had so far hit £1.9 billion of UK exports. This is because British goods are caught up in the supply chains of both countries.

Douglas McWilliams, founder and deputy chairman of the CEBR, said, “This is the direct effect, but there are a series of knock-on effects worldwide to this, and if it impacts on China’s growth or the US’, then there will be less demand for everyone else’s exports.”

Notwithstanding the trade turbulence, just over 10 years after the collapse of Lehman Brothers, there are fears the world could be facing the prospect of another downturn, if only because the current recovery is looking increasingly prolonged.

There are a number of concerns, including the effects of tightened monetary policy globally, particularly in the US, a slowdown in Chinese growth, the vulnerability of Italian banks and the risk this poses for the euro, and the possibility of the UK having a disorderly exit from the European Union.

Roach, a former Asia chairman of Morgan Stanley and author of Unbalanced: The Codependency of America and China, said it is not the time for G20 members to be complacent.

“We have had a long recovery from a very deep hole. The major economies were damaged horrifically by the crisis and what we have had is still an uneven recovery,” he said.

“Yet if you look at the leading indicators, there is no sign of an imminent downturn.”

Apart from the global economy, the main priorities for the summit are infrastructure for development, the future of employment, and food sustainability.

The world is facing a projected infrastructure gap between now and 2035 of $5.5 trillion, according to estimates provided to the G20.

China, with its Belt and Road Initiative launched in 2013, and also the Beijing-headquartered Asian Infrastructure Investment Bank, which opened in 2016 and has 87 member countries, is one nation which has prioritized and led the way on infrastructure.

Bukola Ogunsina, editor of the Sunday edition of the Leadership newspaper in Nigeria, said the summit is right to prioritize infrastructure, as no continent suffers more from a lack of it than Africa.

“China has assisted in infrastructure development throughout Africa through the Forum on China Africa Cooperation (which promotes African development and consists of China and nearly all African states) and the Belt and Road. They have built railways, roads and industrial parks,” she said.

Ian Goldin, professor of globalization and development at Oxford University and a former economic adviser to late South African president Nelson Mandela, said it is not just about building new infrastructure in places such as Africa, but also about replacing old infrastructure in developed countries.

“We basically have to move to zero carbon over the next 20 years or so and that means all existing carbon infrastructure has to be replaced. This not only has massive implications for energy generation, but also for distribution and storage systems,” he said.

The G20 is prioritizing retraining and reskilling as a way to deal with future employment.

According to a study by the Oxford Martin School at Oxford University, 60 percent of Chinese jobs could be lost to robotics and artificial intelligence in the next 20 years.

The US could lose 47 percent of jobs over the same period, Europe 40 percent and, perhaps most alarmingly for global development, a country such as Ethiopia — which has seen manufacturing as a route to economic progress — 80 percent of its employment.

According to Goldin, the so-called Fourth Industrial Revolution could be the one that does not create new jobs.

The first such revolution, in Britain in the 18th century, created urban factory jobs, the second, which began in the US, led to mass production in the early 20th century, and the third, or computer revolution, created many new opportunities in such areas as IT and call centers.

“Basically, anything that is repetitive and rules-based that doesn’t require dexterity and empathy or very high levels of skills and sophistication could be disintermediated (cutting people out) by artificial intelligence and machine learning,” Goldin said.

James Fallows, a US journalist and national correspondent of the Atlantic magazine, who visited Deqing, Zhejiang province, this month for the World Geospatial Information Congress, believes there is already evidence in the US of jobs being created.

He has collaborated with his wife, Deborah, on the book Our Towns: A 100,000-Mile Journey into the Heart of America. During the research for this, they witnessed new jobs being created in the US Midwest.

“In the classic Rust Belt town there was a giant factory, and that factory is not coming back. What we witnessed, however, was a boom in jobs that are now often unfilled in areas such as robotic repairs, small-scale advanced manufacturing and clean energy technology. For people with the right skills, there are now a wealth of opportunities.”

Bigger struggle

This G20 gathering will be remembered most perhaps for the outcome of the meeting between Xi and Trump, with the global economy being so dependent on the Sino-US relationship.

Some observers argue that the trade conflict is a proxy for a much bigger struggle between the world’s two biggest economies, and that they are falling into a Thucydides Trap, where a rising power clashes with a declining one.

Chu Yin, an associate professor at the University of International Relations in Beijing, believes people are misjudging China’s intentions.

“What China wants from the G20 is to see this trade issue resolved, because it is not in the interest of anyone. China certainly does not want to rule the world. That the US has this leading global position is largely a legacy of World War II and the Cold War,” he said.

“China is preoccupied with its own problems, since it is a continent-sized country. In any new world order you would not just have the US and China but also countries like India being leading nations.”

Shi, from Renmin University, believes that if nothing is resolved at the G20 summit, China may look to build better relationships with Europe and countries such as Japan, Canada and Australia.

“People talk about the US and Chinese economies decoupling. China’s only response to this will be to make itself attractive to other developed economies. It will want to avoid any situation where it is largely dependent on trade with just developing countries.”

Roach believes that whatever the outcome of the trade talks between Xi and Trump, the summit will produce some positive results.

“It won’t be an empty-handed summit and they won’t disband without a communiqué. There will be a broad agreement signed on some of these other tough issues. Whether, however, there is progress on trade remains to be seen.”

Cao Desheng and Chen Yingqun contributed to this story.