Geopolitics trumps geoeconomics at Hangzhou

A management adage describes a committee as a group of people who individually can do nothing and who collectively meet and decide that nothing can be done. This definition is apt for the recently concluded Hangzhou summit of the Group of 20 of the world’s largest economies (G-20) with one distinction—while the final communiqué is brimming with ideas to revive the sluggish global economy, there is no will to implement them.

There is broad consensus that the Hangzhou summit—despite the bombastic alliterative motto of “Towards an innovative, invigorated, interconnected and inclusive world economy”—has failed to deliver on any one of the four objectives. While there are some pockets of innovation (particularly in capital-abundant and technology-advanced nations) and some economies (notably India) have witnessed a modicum of invigoration, this is despite the G-20. Similarly, instead of increased connectivity there has been a rise of trade barriers and more restrictions on the movement of people.

Finally, the anti-globalization backlash and the growing economic disparity within G-20 countries also belie the efforts of the group to enhance inclusiveness.

There are two key factors behind the G-20’s lacklustre performance in recent years. The first is geopolitics. Even the final communiqué of the Hangzhou summit candidly admitted: “Challenges originating from geopolitical developments, increased refugee flows as well as terrorism and conflicts also complicate the global economic outlook”.

Among the notable spats that cast their shadow over the summit were US-China disagreements on the latter’s human rights record, cyber attacks and, of course, the South China Sea (although US President Barack Obama downplayed the protocol snafu around his arrival for the summit, it also caused strains). Similarly, there were tensions between China and US allies, Australia, Japan and South Korea, over Beijing’s stand on the South China Sea, its belligerent action in the East China Sea and its opposition to the deployment of a missile defence shield, respectively. The UK decision to postpone the approval of the Hinkley Point nuclear plant over security concerns miffed Beijing, given its $8 billion stake in the project.

Political friction was also evident between the US and its ally Turkey over the alleged role of a US-based cleric in the aborted coup against President Recep Tayyip Erdoğan.

Additionally, North Korea’s unannounced launch of three ballistic missiles towards Japan during the summit underlined, on the one hand, China’s diminishing influence on its recalcitrant ally, and on the other, provided greater justification for the US deployment of the missile defence shield to its allies in the region.

Finally, China-India differences dominated their bilateral interaction. These included Beijing blocking India’s entry into the Nuclear Suppliers Group (NSG), its opposition to putting Jaish-e-Mohammed chief Masood Azhar on the UN terrorist list and the construction of the China-Pakistan Economic Corridor. Significantly, even the usually decorous India, which has restrained from (and indeed opposed) raising political issues at the G-20, joined the growing trend when Prime Minister Narendra Modi publicly denounced one nation in South Asia (Pakistan) for using terrorism as an “instrument of state policy”.

Additionally, while the US and China signed the Paris agreement on climate change primarily because it now serves their geopolitical and geoeconomic interests, India demurred. One geopolitical factor behind India’s reluctance might be China’s rigid stance on India’s NSG membership.

This is not the first time that geopolitics has overshadowed economic agenda. The 2013 Moscow summit was dominated by US-Russian differences over Syria and the 2014 Brisbane summit was marred by Australia’s threats to bar Russian President Vladimir Putin from attending on account of Russia’s annexation of Crimea. What has changed is that the number of inter-state contestations is on the increase and appear intractable.

Second, along with international politics, domestic politics, particularly the rise of populism, which has taken on an anti-trade and anti-globalization fervour, has also emerged as a major hurdle. This trend is evident in the success of the Brexit vote in the UK, the rise of Donald Trump in the US and the relative decline in the political fortune of pro-globalization Angela Merkel in Germany. As International Monetary Fund chief Christine Lagarde warned, it is this anti-trade political undercurrent that is primarily responsible for keeping international trade at low levels.

While purists have argued that the best way to deal with these challenges is to keep G-20 deliberations narrowly focused only on the economic agenda, this is easier said than done. Instead, G-20 leaders should use the forum to address geopolitical concerns, seek to narrow differences and find solutions. Leaders also need to link G-20 recommendations to popular concerns (as Modi has done over black money) so as to build domestic consensus. Unless they demonstrate collective will to pursue this approach, global well-being will suffer.

This article was originally published in LiveMint on September 12, 2016

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Sep 12, 2016
WPS Sidhu
China, Europe