Today marks the start of the G20 summit. Just another meeting of officialdom, you might think. Yet more sterile photo opportunities and meaningless pre-written communiqués.
If that’s your initial reaction, then I sympathise. On previous evidence, you’re right. This G20 summit, though, could really matter. The global economy, despite massive stimulus from the world’s leading central banks, remains in the doldrums – so ministerial minds are focussed. And, for the first time, the G20 is being hosted by China.
Not so long ago, the world appeared to revolve around the G7. As recently as the turn of the century, a meeting of the leading Western powers – including the US, UK and France, with Japan thrown in for good measure – could claim to represent the bulk of the global economy.
All that changed in 2003. At a bad-tempered World Trade Organisation summit, held amid violent protests in Cancun, the global order shifted. Emerging economies such China, Brazil and India, insisted on being taken more seriously. Pointing to their growing share of world trade, these commercial upstarts boycotted further discussions and said they would only participate in global economic forums if the cast list was changed.
The eventual result was the G20 – a group that includes not just China, Brazil and India but also Russia and Indonesia alongside the big Western economies. The likes of Mexico, South Korea, Turkey and South Africa are in there too. Between them, G20 members account for four-fifths of the global economy – making it truly representative. Having meet annually since 2008, mostly in Western countries, the G20 has now finally made it to Hangzhou, in south-eastern China.
The economic backdrop to this meeting is grim. In July, the International Monetary Fund said world GDP would grow by 3.1pc in 2016. That would mark the fifth consecutive year of global expansion below the 3.7pc average from 1990 to 2007 – before the financial crisis. There was further bad news last week, as the IMF indicated it will further downgrade its 2016 outlook when it publishes new forecasts in October.
There are many explanations for such lacklustre global growth. Across much of the world, investment is sluggish and corporate debt is high and rising. Despite years of low interest rates and central bank money-printing, or perhaps because of it, financial markets remain on edge.
Rather less remarked upon, and something the G20 can directly address, is the very sharp recent slowdown in international trade – both reflecting, and contributing to, the worrying rise of protectionism. This summit is being held amidst increasingly strident economic nationalism and heightened anti-globalisation sentiment.
Both candidates in November’s US presidential election, for instance, have dismissed free trade deals being sought by Barack Obama. The proposed Trans Pacific Partnership, between 12 countries around the Pacific Rim, now faces stiff opposition from Hillary Clinton and Donald Trump.
Parallel negotiations between the US and EU, known as the Transatlantic Trade and Investment Partnership have, in recent days, fallen even further behind – again, in part, due to domestic US opposition. “We are part of a global economy – and we’re not reversing that,” President Obama recently remarked. His likely successors seem unconvinced.
Between 1990 and 2007, after the Berlin Wall fell and globalization began in earnest, world trade flows expanded on average by a buoyant 6.2pc year. Since the 2008 financial crisis, though, with both America and Western Europe failing to stage a convincing recovery, international commerce has been slow, growing at just 2.4pc annually from 2011 to 2014.
Last year, far from recovering, global trade slumped further, with the volume of goods and services traded around the world pretty much stagnant. Global trade volume in June, according to preliminary survey data, were just 0.1pc up on the same month in 2015 – the lowest rise since 2009.
In the run-up to this G20, the protectionist alarm bells have been ringing. The number of discriminatory trade measures introduced worldwide in 2015 was no less than 50pc up on the year before, according to the Global Trade Alert database – an astonishing increase. No wonder the WTO is warning protectionism is growing “at an accelerating rate”.
Since the Second World War, the presence of the Bretton Woods institutions means the world has traded relatively freely, with the short-term, protectionist instincts of politicians being kept in check by WTO rules. The result was a twelve-fold expansion in global trade between 1950 and 2010 – and a huge increase in global prosperity.
Earlier this year, the “Doha round” of trade talks, launched in 2001 and designed to ensure further trade liberalisation, was officially abandoned. That amounted to the first failure of a multi-lateral trade negotiation since the 1930s – when rival nations erected increasingly punitive trade barriers and imposed tit-for-tat devaluations, helping to fuel serious conflict.
While it would be alarmist to draw direct comparisons with today, the advent of competitive “currency wars” money-printing and a now undeniable protectionist surge, means such parallels are not entirely unjustified. While the big emerging markets must take some of the blame for the collapse of the Doha round, Western intransigence also played a very considerable part. The question now is, can world leaders bury their differences and acknowledge the overwhelming importance of free trade? And can such discussions start this weekend in China?
While rhetorical nods will be made to lower trade barriers, the unfortunate reality is that protectionist pressures are unlikely to abate. For one thing, China and the US are locked in an increasingly bitter dispute in the South and East China Seas, as Beijing flexes its geopolitical muscles, determined to diminish US influence in the region.
Another reason is that, having had to fight bitterly to establish the G20, many of emerging markets – which now account for over half of the global economy, controlling four-fifths of all currency reserves – still feel extremely marginalised by the West. An oft-cited grievance is the distribution of voting rights at the IMF – changed only in 2016, after a six-year delay, and with the US still holding a veto. That’s why China set up the Beijing-based Asian Infrastructure Investment Bank as a rival to the IMF and the World Bank. Emboldened by hosting this G20, Beijing and its allies may be in no mood to compromise.
A final reason why protectionism could intensity is that the big emerging markets feel the West is less important than it was. As their share of the world economy has surged over the last decade, such economies have done increasing amounts of business with each other. Such “south-south” flows, just a few percentage points of world trade as recently as 1990, rose to a fifth by 2004 and now account for almost a third of all cross-border commerce. Mutual dependence leads to free trade – which, in turn, promotes cooperation and good international relations. As the non-Western world trades increasingly among itself, the temptation to impose barriers grows.
This G20 summit will be the first attended by Theresa May. Amidst much geopolitical buffeting, our Prime Minister must build her own personal credibility and explain that post-Brexit Britain remains open for business. Whilst doing that, she should speak up – for the free movement of goods and services, for international cooperation and, above all, for the continuation of healthy trade and dialogue between West and East. Britain has a record in such matters which, while historically complex, is second-to-none. And Brexit, far from isolating us, makes the UK’s advocacy of global free trade, increasingly credible.