13th Annual Meeting of the Valdai Discussion Club. Session 5. The World Economy: A New Globalization or New Protectionism?

26.10.2016
At the fifth session of the13th Annual Meeting of the Valdai Club, titled "The World Economy: A new globalization or new protectionism?" scholars discussed the current trends of the world economy and their implications for the development of the Eurasian space.

At the beginning of the discussion, participants cited several figures: the growth of world trade dropped to 1.7 percent in 2016, which is comparable with the level of years 2001 and 1982; since the 1990s, the growth of world trade grew twice as fast as global GDP, this figure fell to one and a half times after the crisis of the late 2000s.

One participant noted that integration attempts in the Eurasian space date back to Soviet times. In 2001, the project of a common economic space with Europe was proposed. Talking about the integration of Russia with neighboring republics of the former Soviet Union, one of the speakers said that it lacks the necessary "critical mass." The countries are also completely unprepared for the introduction of a single currency, but will probably be ready in 10-15 years.

According to the participant, Russia needs to build the integration processes within the framework of the SCO, with an emphasis on financial cooperation and an active participation of China, India and Kazakhstan. At the same time to build a relationship with China on an equal footing is very difficult: the difference in the economic development of Russia and China has grown steadily the past 10 years and will only increase in the next 10 years, although India can successfully balance this inequality. Russia can only play the role of "middle brother." To become a "big brother," one needs a lot of money. In the future, it would be possible add Iran, Turkey, Vietnam and Korea to the integration effort.

The panelist also said that it is crucial to take part in regional cooperation. He noted the Western Europe-West China transnational infrastructure project, the Russia-China-Mongolia economic corridor and powerlines from Kyrgyzstan to Pakistan. Only the Asian Infrastructure Investment Bank can give considerable support for these project.

The process of integration is complicated by fact that trade between the countries of the region is not conducted in national currencies. For example, 95% of the total trade between China and Kazakhstan is carried out in US dollars, and the transactions go through accounts in US banks. This scheme involves certain risks, as shown by the freezing of assets of Panama by US court decision. Therefore, it is necessary to build a trading system within the framework of the “troika,” Russia-China-India, on the basis of a new regional currency, for example, the Hong Kong dollar.

One participant noted two important differences between economics and politics. First, most economic competitons are positive-sum games, that is, the victory of one player rarely means the defeat of another. Second, the economy has much more stakeholders, that is, players interested in the success of certain processes, unlike in politics. For example, there are no more than several dozen stakeholders Syrian conflic, while the Trans-Pacific Partnership agreement alone has millions.

A separate topic was the evaluation global macroeconomic trends. In 2008, global trade made up 60 percent, but this number has been falling every year since the global financial crisis. The growth rate of world trade amounted to about 3%, which is comparable with the level of global GDP growth. The world has witnessed a significant increase in inequality, rising Asian incomes (China, India, Taiwan), as well as the income of the richest 1% of the world's population. The level of employment is low income class that inflames anti-globalization sentiment.

Since 2013, South Korea has begun strengthening the link between trade policy and industry, laying the foundation for regional economic integration, the development of a new model of cooperation with emerging economies, strengthening the efficiency of trade policy for small and medium businesses and cooperating and communicating with the private sector.

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