Expert Speak Raisina Debates
Published on Nov 28, 2018
The main challenge for G20 in Buenos Aires

The G20 meeting in Buenos Aires, starting on 30 November, will be an interesting one because the heated exchange of allegations between China and the US are likely to continue from the recent APEC (Asia Pacific Economic Cooperation) meeting in Papua New Guinea’s capital Port Moresby to the G20 summit. It will make the G20 meeting rather tense and difficult for all the members, including India.

The Papua New Guinea APEC meeting was the unexpected stage for a fight between two giant economies. Many observers have hinted that this could end in a new cold war. Every one hopes that the Xi-Trump meeting will go smoothly at G20 and there will be a trade deal.

China today is the biggest protagonist of free trade and globalisation and is hoping that the G20 summit would send clear signals in support of a multilateral system of trade and cooperation. But according to the New York Times, the draft joint statement does not contain the G20’s explicit call to fight protectionism. It also backs away from previous commitments on climate change presumably on Trump’s insistence.

Mike Pence, the US Vice President, already launched a frontal attack on Beijing regarding its trade policies at the APEC meeting. He said at the APEC summit,  Xi was using “ an arsenal of policies inconsistent with free and fair trade, including tariffs, quotas, currency manipulation, forced technology transfers, intellectual property and theft and industrial subsidies handed out like candy.’

The tension between Xi and Pence led to something unprecedented -- it failed to issue a joint communique for the first time in its 29-year history. Apparently Chinese officials barged uninvited into the office of the host country’s foreign minister demanding changes in the official communique. They took offence to a paragraph which stated that APEC members have agreed to fight against unfair trade practices. The other paragraph to which the Chinese objected to was that members of the group would work together to improve the “negotiating, monitoring and dispute settlement functions of the WTO”. The Chinese are the biggest supporter of ruled based trading system under the WTO.

It was a break from the usual decorum that is normally expected at APEC meetings which is aimed to promote cooperation among 21 countries that ring the Pacific Ocean, including powerful members like the US, Russia, China, Japan, Canada and Australia.

The US has already been active in protecting itself from Chinese goods. It has already imposed three rounds of punitive tariffs on $200 billion worth of Chinese good with the threat of more to come in January. Unless there is a deal between China and the US, tariffs on $250 billion of Chinese goods are scheduled to rise from 10 per cent to 25 per cent from January. President Donald Trump has also threatened to impose levies on a further $267 billion of goods from China, covering all imports. These tariffs and their impact on China’s trade have already led to a fall in the Chinese stocks by 27 per cent year-on-year. US technology company shares have been hit also by Chinese retaliation. An escalation of the US-China row could have very grievous implications for the global economy. It will lead to overall shrinkage of trade and world GDP growth.

China has managed to rise despite expectations of the West that it would somehow fail, falter and result in a slowdown. According to analyst Minxin Pei, in 2000 China's GDP was 13 per cent that of the US, but in 2017, it had reached 63 per cent. With this kind of an upward GDP trend, China’s rise can hope to become the number one economic power in the world.

Mike Pence was also critical of China’s Belt and Road Programme (BRI) at the APEC meeting.  The US and Japan both warned developing Asian nations—including Papua New Guinea that growing debts from infrastructure projects could leave them beholden to China. Pence warned the APEC nations “Do not accept foreign debt that could compromise your sovereignty. Protect your interests. Preserve your independence. And just like America, always put your country first”. Pence continued to attack the BRI as a “constricting belt” and a “one way road.” Xi responded by saying that the BRI does not exclude anyone. It is not an exclusive club closed to non-members, nor is it a trap as some people have labelled it.

 Xi also criticised US policies openly at the APEC meeting and said that ‘unilateralism and protectionism will not solve problems but add uncertainty to the world economy.’ He also added that history has shown that confrontation whether in the form of a cold war, a hot war or a trade war produces no winners.       Threats of a new cold war are appearing again like when the pre-Gorbachev leaders of the Soviet Union confronted Ronald Reagan with tit-for-tat diplomacy.

It is important that the G20 members are able to diffuse the tension between Beijing and Washington because otherwise it will have immediate global impact. There will be a scramble for relocating industries situated in China to ASEAN countries with an escalation of trade war between the two giants. It will mean redesigning of the supply chains and finding alternate sources of supply.

China, in its bid to expand exports, may aggressively dump products in India and hence we have to be prepared with our own tariff mechanisms. India may witness substantial increase in exports of cotton which China bought from the US.

There will be turmoil in the stock markets and if the trade faceoff is not diffused by the G20 and it will affect the US economy also as its imports from China recede and cost of living will go up. It will affect the US inflation rate because parts made in China that go into US manufacturing supply chain will be much costlier. Already inflationary pressure is building up and this will cause a resetting of interest rates which may cause further turbulence in the Emerging Economies’ stock markets. Since the US manufacturing sector has heavily invested in automation which has led to higher productivity, the pattern will continue in the future and there will be fewer jobs created in the US in the manufacturing sector – contrary to Trump’s expectations.

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.


Jayshree Sengupta

Jayshree Sengupta

Jayshree Sengupta was a Senior Fellow (Associate) with ORF's Economy and Growth Programme. Her work focuses on the Indian economy and development, regional cooperation related ...

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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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