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G20 obliged to promote multilateralism

By Yu Chunhai | China Daily | Updated: 2019-06-25 07:05

According to the latest forecasts of the International Monetary Fund, World Bank and the Organisation for Economic Co-operation and Development, the economic growth of almost all the major economies including the United States, the European Union, Japan and China will decline in 2019.

Global economic growth has been fluctuating in the past couple of years. This year, the global economic situation has deteriorated because of various factors.

The first is the global economic trend. In the post-global financial crisis era, labor productivity in major developed economies has been declining despite signs of strong economic recovery at times. From 2000 to 2007, the average growth rate of labor productivity in OECD countries was 1.38 percent, with the figure declining to 0.82 percent between 2010 and 2017. This decline of potential economic growth is understandable given the rising aging population and the relative decline in the growth of working-age population.

The second factor is the cyclical force. Thanks to their expansionary macroeconomic policies, major economies, especially the developed ones, have been able to narrow their output gap (the difference between actual output and potential output), which reflects the utilization rate of existing economic resources. In 2018, the output gap of the US, the EU, the United Kingdom, Japan and OECD countries was-0.66 percent,-0.39 percent, 0.19 percent,-0.33 percent and-0.55 percent respectively. Besides, the unemployment rate of the US is the lowest in two decades and that of the EU the lowest in three decades. All these indicate the economic expansionary cycle supported by demand management has reached the peak, and major economies are gradually entering a downward cycle.

The third factor is the impact of trade disputes and policy uncertainties on the global economy. The US' unilateral and trade protectionist policies have increased the cost of global trade, disturbed global production and value chains and thus harmed the global economy. They have also added uncertainties to global trade policies and undermined enterprises' confidence, leading to the decline in investment and economic growth rates.

The WTO reduced its global trade growth projection for 2019 to the lowest level in three years due to rising trade frictions, cyclical changes and the decline in the major economies' growth rate.

Against such a background, the G20 has become the most important policy coordination and economic governance platform in the world. Thanks to the G20 promoting macroeconomic policy coordination and cooperation among various countries, the global economy overcame the worst economic crisis since the end of World War II. Yet the world economy has reached a crucial turning point again.

Facing global downturn pressure, economies have to choose between coordination and cooperation on the one hand and vicious competition on the other to tide over the increasingly serious economic problems. But they should know that coordination and cooperation will help them avoid another global economic crisis, and vicious competition will further intensify policy frictions leading to another economic crisis.

Yet if countries focus on their own national interests and resort to unilateralism and protectionism that undermine other countries' interests, they will inevitably trigger frictions and conflicts.

To prevent such a scenario from becoming reality, there is an urgent need to establish a set of effective multilateral rules aimed at restricting countries from using unilateral and protectionist policies and, instead, seek coordination and cooperation with other countries. This is exactly what the G20 Summit scheduled for June 28-29 in Osaka, Japan, should aim to achieve, in order to promote global growth and free trade.

At a time when the multilateral trade and investment system is undergoing transition, there is an urgent need to aggressively promote multilateralism by devising fair and equitable global trade rules. In this regard, the G20 should play the role of a truly multilateral platform and re-emphasize the basic principles of the multilateral trade system, and promote trade liberalization, equality, mutual benefit and mutual respect.

Therefore, the multilateral trade system should be high on the G20 Summit and it should adopt global rules that will improve on the existing multilateral trade system instead of rendering them useless.

The author is a researcher at the National Academy of Development and Strategy, and a professor of economics at Renmin University of China. The views don't necessarily represent those of China Daily.

  
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