G20: A Transition to Bipolarity?

On November 30-December 1, Argentina hosted a G20 summit. Although expectations had ranged from major turmoil to dead calm, apart from a few bilateral meetings, its only achievement was US President Donald Trump signing a new agreement with Mexico and Canada replacing NAFTA. Hence the questions: How functional and effective is this economic forum and what awaits it in the near future? Is it capable of restraining the growth of protectionism and trade wars? What specific measures are proposed in its final declaration? Stanislav Tkachenko, Visiting Professor at the Research Center for the Economies and Politics of Transitional Countries, Liaoning University, answers these questions in an interview with www.valdaiclub.com.

The overall impression of the recent G20 Summit in Argentina is that its usual global agenda – forestalling economic crises – has either been resolved or gone to the back burner. At least, the final declaration of the recent forum is a rather unbalanced document. The first clause actually dealing with the core agenda of the group, the mission it was established for in 2008, is only number 23. The key G20 issues are not mentioned until clauses 23 through 30: the stability of international finance, refraining from competitive currency devaluations and tax havens, the financial transaction tax (Tobin’s tax), and so on. All these dangers have indeed decreased noticeably. Over the past decade, their threat to the global economy has been reduced or almost completely eliminated. That is why the first clauses of the declaration raise rather unusual issues, more suitable for plenary sessions in Davos or at the St. Petersburg Economic Forum, where economists and politicians reflect on the future, the implications of the fourth industrial revolution or the threat of tax base erosion in certain countries. All this is very good, but it has no direct relation to the actual international relations agenda.

A specialist in political economy and macroeconomics would raise eyebrows at this declaration. It does contain some interesting points concerning the main G20 agenda – for example, the agreement to revise some of the IMF quotas. China, India and Russia are rather skeptical about the IMF activities, seeing the fund as an instrument of American policy; therefore, China initiated the creation of the Asian Infrastructure Investment Bank, and Russia, set up several development banks in the CIS. That is why the G20, including China, Russia and India, supporting the restructuring of the IMF is, in any case, something new.

It is also good that there is a clause on the threat of fragmentation of financial markets – a response to the new US policy capable of stopping the globalization process and bringing back the currency wars and trade and economic conflicts of the past. The G20 was in fact established to promote the political and economic agenda of the United States and the newly elected President Barack Obama in 2008. With the 2008 financial and economic downturn, maintaining stability in the global economy and finance and preserving a liberal trade regime, low trade barriers, and new trading blocs in the North Atlantic and Pacific Ocean became the US’s priorities. Now Donald Trump has a different agenda: protectionist policies focused on Washington’s unilateral benefits from the US dominant position in global politics and economy.

Therefore, the leaders of various countries have now started talking about the fragmentation of financial markets or the destructive competition between national tax systems. This suggests that the G20 has preserved its main mission of helping the global economy maintain its positive momentum. However, the world economy is generally growing at a good pace today, and the anxiety that dominated at the time the G20 was established was no longer present among the leaders meeting in Buenos Aires.

Therefore, although the G20 still retains its potential to support the global economic stability, there is an impression that its mission is coming to an end. If this trend is not reversed, then, a summit or two from now, we might see the return of trade wars and competitive devaluations of national currencies. In that case, the current G20 format, built around the US leadership and hegemonic in nature, will not work at all. The nature of the G20 is that of an international forum, not an international intergovernmental organization. It adopts declarative documents, subsequently implemented at some level: by interstate integration associations or individual sovereign states. In 2008-2009, it was astonishing to see how the G20 declarations were promptly and successfully implemented by the United States, the EU, and Russia.

Over the past three years, the global political and economic system has been plagued by uncertainty due to the Donald Trump administration’s arrival at the White House and the threat of protectionism, the widespread use of economic sanctions, and the increasing volatility of the global financial system and commodity markets. The content of the G20 declarations in the past two or three years became somewhat blurred, as the heads of the leading states were compelled to return to discussing issues already successfully resolved in 2008-2010. However, overall, the level of transparency and sustainability of the international financial system is now higher than at any point since the 2008 global financial crisis. Therefore, the last three G20 summits were more like review lessons for struggling students.

On the other hand, in Buenos Aires, we finally witnessed the first long-awaited RIC summit – a meeting of Russia, India and China. Gradually, before our eyes, the groundwork is being laid for a new bipolar system of the global economy: the United States and its numerous satellites, on one side, and RIC, together with their BRICS and SCO partners, on the other. It cannot be ruled out that in the future, the G20 forums will be replaced by annual meetings where two large groups of states (US allies and their opponents) will discuss the same issues: maintaining the stability of global finance and the freedom of international trade.

As for the USMCA agreement that replaced the NAFTA deal, the differences between them are not dramatic. The United States increased its import duties on automobiles, protected certain segments of its national market from foreign competition, and secured better access for its companies to the markets of Mexico and Canada. In cases where US goods and services were hampered by customs barriers, Canada and Mexico lowered them, and where there were quantitative restrictions on the supply of US goods to those countries, the import quotas were increased.

In my opinion, there is one key change, though. The NAFTA agreement was initiated in 1993 and adopted in 1994, at a time of global fascination with integration processes. The new US president, Democrat Bill Clinton, sincerely wanted to have a free trade zone embracing the entire North American continent. That, however, is impossible without real integration, i.e. voluntary and equal integration. Still, neither Clinton, nor later the Republican administration of George W. Bush was going to create equal integration associations with other states. Furthermore, the NAFTA treaty had a different effect on the United States from what was planned. Its implementation indeed led to an increase in mutual investment and trade between the three countries; only it did not lead to an increase in the well-being of citizens, the hired labor, in any of the three countries that signed the agreement. Quite the opposite, in the US, NAFTA ousted hundreds of companies from its economy, and thousands of enterprises in the automotive, IT, consumer electronics and textile industries moved out. Those industries used to offer millions of fairly well-paid jobs, and historically, each had very strong trade unions.

Therefore, for the Democrats – the party NAFTA was firmly associated with – its long-term political effect was extremely negative. Donald Trump is well aware that the Rust Belt states, the old industrial regions, voted for him in 2016 largely due to his criticism of the US capital and jobs outflow. Therefore, keeping in mind the next election campaign, it is essential for him to show that the United States is ready to shed everything related to NAFTA. And it is no coincidence that the new deal has a new name, although its content is mostly old. What the new treaty (USMCA) did was to transfer the discussion of free trade in North America to the micro level: it now continues between individual sectors and mainly through bilateral negotiations, where it is easier for the US to get concessions from its partners. That is, the integration rhetoric is no longer there, replaced with a series of bilateral or trilateral agreements not completely eliminating trade barriers, but making them more attractive for large US businesses.

Another important point for Trump has to do with Mexican immigrants: the idea behind NAFTA was partly to move production from the US to Mexico creating high-paying jobs south of the border. As a result, the influx of illegal immigrants from Mexico was expected to sharply decline or stop completely. In reality, however, the socio-economic effect from moving production from the United States to Mexico was almost zero. The industrial facilities were actually transferred, but wages remained low in Mexico. And for an average Mexican worker, it was still better to illegally move to the United States and get a job there than to stay in Mexico to work at US-owned enterprises there. Donald Trump declared the reduction of illegal immigration one of his key political goals; the new deal strengthens regulation of interstate trade with Mexico and also gives him the opportunity to increase duties in sensitive industries, while abandoning the US policy of moving jobs to other countries to curb illegal immigration from Mexico and other South American countries. Now a high wall will protect America from illegal immigrants.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.