Logic at the wayside at G20

The success of the G20 will rely on leaders to agree in a world where “me first” is privileged over cooperation.

Merriden Varrall

27 November 20184 min read

The theme for the upcoming G20 Leaders Meeting to be held in Argentina is “Building Consensus for Fair and Sustainable Development”. As the “premier forum for international economic cooperation”, the G20 brings together advanced and emerging economies to, among other things, improve the fairness of the global tax system.

But have the host country or the participants of the Meeting taken the current geopolitical environment into account when considering their goals or how to achieve them?

The present global context is one not of economic logic, but of political imperatives; not of cooperation, but of rising nationalist sentiment.

Official rhetoric around the G20 this year is rich with the language of dialogue, cooperation, inclusiveness, fairness, integration, and consensus. The Argentine presidency is focusing on three key issues. The first, the future of work, is about how embracing technology can unleash human potential, and overcome exclusion, social disintegration, or backlash – if done well. The second is mobilising private resources to develop much-needed infrastructure for development. Food security is the third item on the agenda.

For tax policy, the 2018 G20 emphasises addressing the challenges presented by technological change, particularly digitalisation. The host notes that fighting against tax avoidance and evasion is key. Goals include the timely implementation of transparency commitments, actions to avoid base erosion and profit shifting, and addressing “fundamental questions around how the digital economy generates values, where value is created, and how taxes can be reported and collected fairly, efficiently, and without creating barriers to innovation”.

These are all valuable and important goals. To achieve them, G20 leaders need to ensure they situate their discussions in the reality of the current global environment.

The present global context is one not of economic logic, but of political imperatives; not of cooperation, but of rising nationalist sentiment. Rather than focusing on global public goods, more and more countries around the world – some of whom were the bulwarks of multilateralism and openness – are adopting the approach of “me first”.

It was only two weeks ago that the Asia-Pacific Economic Cooperation (APEC) Leaders’ Summit ended without the release of a joint communique. This is unprecedented and reflects the different priorities of some of the key actors. Or, perhaps it is more accurate to say it reflects the convergence of their priorities – putting (a certain definition of) the national interest above all else. The US and China, in the end, could not agree to the wording around the World Trade Organisation or the language that Beijing felt criticised its trade practices.

Cooperation among parties is critical to the success of the G20, but if APEC is anything to go by, this will not be easy.

There has been considerable speculation in the lead-up to the summit around a meeting between US President Donald Trump and Chinese President Xi Jinping. A lot of hope rests on the two leaders being able to come to some agreement on trade, or at least, negotiate a suspension of tariff escalation that would allow negotiations to continue. Despite the hope, there is little reason to be optimistic that such a deal will be made, or, if it is, last long. The domestic political imperatives for each leader are at least as weighty as any economic logic.

For Trump, while pressure is increasing in some quarters, there is no urgency to do a deal with China. Tariffs are not yet costing him politically, and agreeing to a deal now would expose him to attacks both from Democrats for being too lenient, as well as by hardliners in his own administration. There are factions in US politics pushing in both directions, but Trump’s trade advisers are likely to be able to convince him he could get a better deal by continuing to apply pressure.

For China, it is not likely that Xi will blink first. This has become a nationalist issue.

The growing global trend away from cosmopolitanism and multilateralism, towards nationalism, protectionism, and “me-firstism” has a lot to do with citizen perceptions that globalisation has failed them. According to this view, business and government have not delivered on promises of global connectivity bringing progress and improved wellbeing. Trust has eroded and fear has taken its place. Perceptions of tax unfairness are a part of people’s sense of disillusionment. Average citizens may not know the exact figures, but they have a strong sense that someone is winning and it isn’t them.

In the lead-up to the Hamburg G20, Hugh Jorgensen argued that the G20’s work on taxation had not been ambitious or exciting. But he noted then that a real focus on working together to ensure taxation policy is fair, inclusive, and providing revenue to governments to spend on citizen needs could show that business and governments are serious about inclusivity and fairness. Making tangible progress on Base Erosion and Profit Shifting (BEPS) would be a good start.

Jorgensen made that call two years ago, and the global geopolitical environment has not improved since then.

The 2018 G20 leaders need to learn from what happened at APEC, square their collective shoulders and face the very difficult truth that geopolitics is subsuming economic logic, and incorporate that reality into their deliberations and discussions.

In the current geopolitical climate, nationalism is eroding the enlightened self-interest that built and has so far sustained a multilateral system that at least aspires to deliver public benefits around the world. It may not be perfect but it should be adjusted and revised, not discarded. Global challenges require global solutions.

Merriden Varrall

About the author

Merriden Varrall

Dr Merriden Varrall is a Nonresident Fellow at the Lowy Institute.

Topics

Economy