Tuesday, March 31, 2009

G-20

. Tuesday, March 31, 2009

The current G-20 summit, like most, is often big on headlines but short on substance. There are the requisite anti-everything protests, the expected French threat to pick up their ball and go home if they don't get their way, the typically vague but high-minded communique, the downgraded expectations, and the regret.

So what can come out of this? The major players will continue to verbally commit to coordination, as they have always done, but coordination requires compromise, and so far no world leader seems interested in giving up some autonomy in exchange for policy convergence. And President Obama is either uninterested in setting the course for the G-20 or is unable to do so. His response toward the crisis has so far been to take care of his own first, and deal with the systemic global problems later (if at all). Remember: not only did Obama not attend the recent World Economic Forum in Davos, but he didn't bother to send a single high-ranking official either. So far, his attitude towards European leaders has been reminiscent of FDR, and not in a good way.

The U.S., France, and U.K. have found some common ground already: they're going after off-shore tax havens. Unfortunately, this has next-to-nothing to do with the present crisis.

The November G-20 meeting produced basically one commitment: to uphold free trade and refuse to resort to protectionism. How did that work out? As Drezner notes:

Sounds great, except that two days after the summit, Moscow announced that increased tariffs on imported cars. A day after that, India slapped a 5 percent duty on several iron and steel products. A month later, Brazil approved the idea of raising common external tariffs among the countries under the Mercosur agreement on a number of goods, including textiles and wine. China increased export tax rebates on more than 3,700 goods. The U.S. Congress approved "Buy American" provisions in the February stimulus package that blocked government procurement from most developing countries, including the BRIC economies. The World Bank recently reported that 17 of the 20 countries had imposed a total of 47 trade-restrictive measures. Simply put, the first G20 summit produced little action but copious amounts of hypocrisy.


Even further, there are few focal points for reaching agreements. China and Russia desire an end to the dollar as the world's reserve currency, Brazil has argued that the costs of global stimulus should be borne by the countries that caused the crisis, the EU refuses to consider further fiscal stimulus, and everybody seems to want broad, sweeping changes to the regulatory structure; what those changes actually entail, however, is TBD.

I have little hope that anything productive will come out of the G-20 meeting; coordinated action is just too difficult when each country has different challenges and priorities. But now that the first burst of stimulus is past, I do hope that a real commitment to maintain an open trading system is within reach. Perhaps the crisis can even force the resumption of Doha (I'm not holding my breath). Yes, an open trading system means that some stimulus intended for domestic constituencies will spill out into other countries. That's inevitable and also acceptable, especially since a retreat into protectionism could have very perverse effects for already-reeling economies.

The priority of the G-20 meetings should be to shore up the economic activity that we still have to use as a foundation for recovery. Roll back the creeping protectionism of the past 6 months, make a strong commitment to maintaining an open system of trade. True, it's only a marginal victory, but at this point I think that's all the G-20 can realistically hope for. Unfortunately, even that much may be too tall an order.

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