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The rules based economic disorder after Osaka G20

Shiro Armstrong / Share:

The Osaka G20 summit may yet be remembered in history as the moment the global rules based order was lost. There was no mention of the rules-based order in the communique, signaling an edge towards rule by might rather than rules among the major powers. The uncertainty that has clouded the global economy over the past few years is child’s play compared with what could come now without a major effort by middle powers to avert catastrophe.

Leaders of the most powerful 20 countries in the world met last week in Osaka for their most important meeting since the leader’s summit was first convened to respond to the global financial crisis. Prime Minister Abe and the Japanese government found themselves at the helm of the global grouping at a time when multilateralism is under its biggest threat since the global multilateral regime was created after the second world war.

At stake is the future of the multilateral trading system and global economic cooperation. The current global hegemon is intent on tearing down the rules in the face of a rising power that is challenging its supremacy. The United States has gone from underwriting the order for the past 70 years to becoming its biggest threat. China’s rise was always going to be difficult to manage but US President Trump and Chinese President Xi are making it perilously close to impossible for the rest of us.

There appear to be no constraints on the populist backlash against globalisation in much of the advanced world that is threatening prosperity globally. The future of the multilateral trading system is in doubt as the enforcement of the inadequate though crucial WTO rules look to fall apart in December with the United States vetoing the appointment of judges to the appellate body of the dispute settlement system.

After recognising the need to update the WTO rules at the last G20 summit in Argentina only 7 months ago, the leaders in Osaka could barely manage lowest common denominator language in their Osaka communique that raises more doubt than confidence. Gone are the empty words copy and pasted into past communiques denouncing protectionism. The best that could be managed was a single watered down paragraph on trade that did not mention protectionism or multilateralism.

For a group that is essentially the steering committee for the global economy, there is no mention of the importance of markets in their long-winded and at times farcical communique. There is an America First paragraph shoe-horned in explaining the US disdain for the Paris Climate Accord. It’s difficult to know what to make of the other dozen or so pages.

There was some good news amongst the train wreck. There was a temporary truce in the escalating trade war between China and the United States. And Australian middle power diplomacy managed to broker a consensus statement to combat terrorist and extreme violent material online.

The most promising sign at Osaka was that countries like Indonesia took a proactive stance, standing up for their interests in multilateral trade. Indonesia’s efforts were frustrated by a Japan too willing to kow-tow to the United States. And Australia, while repositioning dramatically and intelligently on the threat to the global trade regime under the new Morrison leadership, is yet to weld an effective, well thought through strategic game with Indonesia and other middle sized powers that delivers. That is the challenge for Australia now.

Japan’s tactic was to conclude a summit along a path of least resistance. Mr Abe’s main aim was to avoid upsetting its security guarantor that is also threatening tariffs on Japanese automobiles. Mr Trump had again questioned the US–Japan alliance in a TV interview prior to departing for Osaka.

The Japanese hosts were intent on trying to make something of Mr Abe’s promise in Davos of data free flow with trust. Data and digital trade are areas that lack global cooperation but the well intentioned agenda had little chance of tangible outcomes without addressing the trade agenda comprehensively, given the divergent interests of the major powers.

The resumption of renegotiations between China and the United States was expected and gives global markets some breathing space. But nothing was resolved in what is a G2 deal that is trying to patch things together without addressing the underlying long term structural differences in the complex and competitive relationship.

For the first time there is a consensus statement at the G20 separate from the G20 leaders’ communique driven from outside the host’s own agenda. After the Christchurch terror attacks that were broadcast on social media, Australia led a global effort to put some needed disciplines on social media platforms. The United States signed up to a global effort to curb some of its largest companies. Follow-through on this will be difficult without restoring a measure of consensus on the global trade agenda and commercial policy.

The separate statement from the G20 might be an example for mobilizing collective action, even without consensus. It may become an outlet for middle powers to deploy coalitions to defend multilateralism if China, Russia or the United States scuttles the efforts of future G20 hosts. That may be needed as the next three G20 hosts Saudi Arabia, Italy and India, are not exactly strong global consensus builders.

The G20 summit may be neither credible or effective in dealing with the biggest problems facing the global economy but all the major problems that face the world require strong collective action and cooperation. More than ever middle powers will have to work together and be proactive and creative in their pursuit to save what they can of the rules-based order. Osaka shows there is no other way.

Shiro Armstrong is Director of the Australia-Japan Research Centre and Editor of the East Asia Forum at the Crawford School of Public Policy, The Australian National University. This first commentary first appeared in East Asia Forum.

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