Opinions & Ideas

Category: G20

THE G20 NEEDS TO SHOW REAL LEADERSHIP ON THE GLOBAL VIRUS THREAT

It is welcome that, at last, the G20, representing the world’s most important countries, and 90% of the world’s population, is getting together in a teleconference to discuss the health and economic crisis caused by the Covid 19 virus. It has been obvious for several weeks that coordinated international action was going to be needed.

 Given that the G20 was brought into being in 2009 to deal with precisely this type of global crisis, the banking crisis of 2008, it is amazing that it has taken the Saudi Presidency of the  G20 so long to convene at meeting. They were pressed into doing so by India. 

In 2009, when the G20 was first convened, there was a reasonable relationship between the two biggest world powers, the US and China. Gordon Brown of the UK was in the chair and substantial programme of action was agreed and implemented. The Financial Stability Board was set up, and a global programme of actions to stabilize banks was agreed and put into action.

 China led the way in stimulating its economy through infrastructure spending and this helped get the global economy going again. Germany and Europe benefitted from this through exports.

Now that lives, and not just livelihoods, are at stake an even more vigorous programme of action from the G20 is needed.

 The US and China need to stop sniping at one another and start cooperating. The US and China coming together to work on this global threat would give hope to the world.

 Japan set a good example that the US might now follow, when the crisis first  broke out in Wuhan. It donated protective equipment to Wuhan and Japanese MPs donated 5% of their personal salaries to the virus containment efforts in China. This was a remarkable gesture in light of the previous public hostility between these countries, going back to World War Two.

The Covid 19 crisis has revealed how much we all depend on the chronically underfunded World Health Organisation(WHO). The WHO will be part of  this teleconference convened by the Saudi Chairman of the meeting, King Salman.

 In recent budgetary proposals, the US White actually proposed halving the US contribution the WHO. Instead ALL G20 members should agree to double their contributions to the WHO.

Trade barriers, many of them recently erected, are also hindering efforts to save lives.

The international Chamber of Commerce in Paris has said

“the recent escalation of trade barriers is now wreaking havoc in key medical supply chains”.

 For example, restrictions on exports of life saving equipment, including masks, test kits , disinfectants and ventilators, have been introduced by some countries. The global trade in test kits is worth $186 billion and that in disinfectants is worth $308 billion. 

 The Global Trade Alert Team in Switzerland say that damaging export bans have been introduced by a list of countries including  Bulgaria, France, India, the UK, Korea, and even by Saudi Arabia itself!

 In the case of ventilators, export restrictions would be particularly damaging. There is no firm on the entire continent of Africa, and only one in Latin America, that is capable of manufacturing ventilators. And even the countries, that do have manufacturing capacity, will have to import some of the components.

Even soap and disinfectant have to be imported by most countries. 78 countries impose tariffs on soap and 23 impose tariffs on disinfectants.  This is crazy in present circumstances.

The G20 should decide that all barriers to trade in goods, including soap, that the World Customs Organization(WCO) has said are critical to fighting the virus, should be removed straight away.

 The EU should abolish its  own export authorisation system for ventilators because it will slow down production and cost lives, especially in the poorest countries of the world.

The G20 also needs to consider the longer term economic effect of the shut down in global economic activity.

 Big countries with big tax bases can protect themselves and their firms. Germany has introduced a big package of aid for German firms.  But an Italian firm, producing the same product as a German firm, may not get the same aid as its German competitor, and this could destroy the level playing field of the EU Single Market.

 No country derives as much benefit proportionately as Ireland does, from the existence of fully fair and open EU Single Market. So Ireland should support EU coordination of all business supports to ensure that all firms, whether from big or small countries, can compete fairly.  

The ECB has taken welcome steps to help Italy, and other heavily indebted countries, that have been hit by the virus, to borrow at reasonable interest rates. But that simply adds to their debts.

 Collective EU action, financed by collective EU borrowing, in support of particular health related spending should be undertaken. At the moment, the EU can neither raise taxes nor borrow, and that means it is unable to cope with crises like this one.

I propose

  • the immediate elimination of all tariffs and restriction on the export or import of goods identified by the WCO as vital to fighting Covid 19
  • a mutual assistance programme to help countries with the greatest shortage of equipment and  intensive care beds
  • the exemption of medical staff, who have been tested, from immigration restrictions to allow them go where they are most needed

HIGH NOON IN BUENOS AIRES

The G20 meeting in Argentina, which took place last weekend,  simply postponed a confrontation between the US and China which could prove to be as momentous for Ireland as the Brexit vote in the House of Commons on 12 December.

Will a deal be possible in 90 days time?

The omens are mixed. Some US officials say China is offering nothing concrete to bridge the gap between the countries, just promises. President Trump is particularly sensitive about imports in the wake of thousands of lay offs by General Motors last week, which he blames on import competition.

President Trump has already imposed a 10% tariff on a wide range of Chinese goods in an effort to rebalance trade between the US and China. He has said he will increase the tariff rate from 10% to 25% on 1st January, if he does not get satisfaction from the Chinese.

He has threatened further measures to follow.

His concern is about the alleged theft on US intellectual property by China, Chinese subsidization of exports through state supported companies, and the supposed under valuation of the Chinese currency to boost Chinese exports.

A full fledged trade war could start if matters are not sorted out in the next 90 days.

One might think that a dispute like this might be referred to an arbitrator, who could adjudicate on the facts and the arguments. The WTO dispute panels are there to do this. But the US is refusing to appoint judges to sit on these panels, and President Trump has even threatened to withdraw from the WTO altogether.

A Trade War between the US and China would be very bad news for Ireland.

More than any other EU country, Ireland is dependent on the US as a destination for our exports. If the trade dispute with China hits US growth, the effect of that would be felt in Ireland more than in any other EU country.

As an export oriented country, Ireland has also invested heavily in building an export trade to China. We rely on a growing Chinese middle class to consume our meat and dairy products.

We also depend disproportionately on multinational companies, who use global supply chains, which would be disrupted drastically by a trade war between the world’s two biggest economies.

President Trump feels that China has gained unduly and unfairly from its membership of the World Trade Organisation (WTO) since 2001. Since then, while still being a state directed economy, China, through its membership of the WTO, has been able to get easy access to the markets of the world under the WTO’s Most Favoured Nation principle (MFN).

MFN requires a WTO member state not to discriminate between countries, and to charge the same tariffs of goods from all WTO members, including China, unless it has a comprehensive trade agreement with that other country (in which case it is allowed to discriminate in favour of that country).  

President Trump’s deeper worry is that China is using the profits it is making from its export industries to build its military and naval strength in the Western Pacific, where the US also has bases and alliances.

The US sees its bases in Korea, Japan, Thailand and the Philippines as defensive. After all, the US has had a military presence in the western Pacific, in the Philippines, since its war with Spain in 1898. But to China, these US bases, ringed across the sea lanes China uses to survive, are a threat.

To break out of its encirclement, China has increased its own military spending substantially. But it is still spending less than a third of the US defence budget.

So this is not a simple trade dispute that can be settled easily.  

China will continue to want to break out of ring of US bases on its eastern flank. Indeed its much publicised “One Belt One Road” initiative, to develop transport links from western China all the way to Europe, could be seen as an attempt to break free of its dependence on the Pacific sea routes, where it confronts the US and which the US could block in the event of confrontation between the two countries. Japan faced a similar situation in 1941.

The growing trade dispute is already having an effect. China’s economy is showing some signs of stress. New car sales there have declined. Corporate borrowing is high and could be hit by a rise in interest rates, which might be forced on China if it needed to revalue its currency to meet one of President Trump’s complaints. The biggest increase in global debt in recent years has been in China. It is an important element in the global banking system. A slowdown in China would affect the rest of the world.

China acknowledges it has a surplus in goods exports to the US, but believes this is compensated by services exports by the US to China, and by the privilege to US enjoys because its currency, the dollar, is the world’s reserve currency.

To an extent, China and the US are talking past one another. The Americans are even complaining about having to translate Chinese trade proposals from Chinese into English!

Given the complexity of the rivalry between the US and China, the best outcome one can hope for in 90 days time is a some form of combination of minor agreements and postponements.

The really important battle for Ireland and for the EU will be that of defending and strengthening the WTO.

Arbitration, rather than confrontation, should be the way to resolve trade disputes.

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