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G20 becomes shallower even as it expands

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Welcome to Trade Secrets. I’m sorry to say that I just can’t get worked up about the G20 softening the language on Russia and Ukraine in its communiqué over the weekend. The G20 doesn’t have an army, and neither do its communiqués substantively bind its members in any area as sensitive as national security. Below I argue it simply underlines how the G20 stays alive by saying fewer things of interest while recruiting more people to say them. Speaking of institutions looking for direction, this week I’ll be in Geneva at the World Trade Organization, which is holding its annual Public Forum. The event is actually quite a jolly affair. It started as a research and discussion conference and has now basically added on a convention for the trade policy industry (a trade trade fair, if you will). You can watch some of the debates livestreamed here. I’ll report back next Monday on the mood in the WTO. Charted waters is on the weakness in the Chinese renminbi.

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Never mind the quality, feel the width

There’s a telling conspicuous-absence aspect to international summits at the moment. It’s as much about who doesn’t turn up as who does. August’s Brics meeting was notable for the truancy of President Vladimir Putin, skulking at home in Moscow to avoid an international arrest warrant for alleged war crimes. President Xi Jinping decided to skip this weekend’s G20 summit in India, perhaps thinking it insufficiently populated with China’s satraps for his liking.

Looks like he wasn’t really needed, since India managed to dilute the language on Ukraine anyway. The fact that the rich democracies went along with it rather than blow up the meeting suggests they attach more importance to the G20 than China does.

You can always boost attendance by enlarging the membership, and this weekend the G20 gave the 55-nation African Union the same full-member status as the EU. But as the representation widens, so the focus dissipates.

It sounds reasonable enough to admit the AU, if only for reasons of legitimacy given the EU’s presence. But the EU is one of the world’s great trading, regulatory and currency powers. By contrast, while the AU did help to broker the creation of the African Continental Free Trade Area (AfCFTA) in 2018, the pact is a far weaker agreement than the EU single market and it doesn’t collectively strike deals with other countries and trade blocs.

As for the AU’s geopolitical role, if anything it’s managed to do even less to stop the recent string of military coups in west Africa than the EU has to rein in Viktor Orbán’s autocratic tendencies in Hungary or indeed to deter Putin from annexing Ukraine.

Even the most fervent G20 cheerleader has to accept that the grouping’s promise has faded since its elevation to primary global governance gabfest status in 2008. China’s indifference, if it persists, will weaken it further.

Beijing is ruthless in choosing which institutions it invests energy in. As FT colleagues have described, China wants to dominate a bunch of UN agencies if it can pack them with friendly developing nations, much like the Brics grouping. Whatever you think of China’s actual trade policies, it has continued to engage actively in the WTO, certainly compared with the US. But Xi seems to have put the G20 into the same bucket as he has the IMF and World Bank: not pliant enough for his liking.

India’s drive for trade deals is energetic but limited

So if the G20 didn’t advance matters much, what is the host India itself up to? After a decade of being guided by its traditional toxic aversion to preferential trade agreements, particularly with rich economies, New Delhi has recently signed deals with the United Arab Emirates and Australia, and has talks with the EU, UK and New Zealand on the go. Should we be excited?

Only a bit. Basically, what’s happening is this. India’s prime minister Narendra Modi vaguely likes the idea of being a pro-business free-trader. He also specifically likes the idea of establishing trade and geopolitical links to challenge the gravitational pull of China. (His rather nebulous announcement over the weekend of an India-Middle East “transport corridor” backed by the EU, US and Saudi Arabia, details tbc, is a classic of the genre.) But he’s also got the standard Indian problems with exposing vulnerable small farmers to import competition. Moreover, he wants to try his hand at industrial policy, including raising some goods tariffs, to strengthen Indian manufacturing.

Ergo, India has offered round a fairly thin deal to trading partners that excludes access to its market for a lot of sensitive products including wheat, rice and sugar. Whether countries have taken this basically depends on how keen they are themselves to signal independence from China or an active trade policy more generally. Australia, facing Chinese trade coercion, snapped it up, labelling it an interim deal and is now trying for more. (Good luck with that.) The UK, keen for post-Brexit points on the board, was also very keen and kept briefing that it was imminent, but is now balking at Indian demands on work visas.

The EU is much less bothered about the symbolism and the geopolitics and won’t sign a deal that dilutes its standard preferential model. New Zealand, which doesn’t have the same issues with China that Australia does, is also eager in principle but holding tough on substance in practice, particularly on dairy.

What India’s been offering isn’t nothing, but it’s more of a Rorschach blot that reveals the attitudes of its trading partners than a coherent attempt to liberalise.

Charted waters

Remember the glory days of the 2000s when trade disputes were all about currency undervaluation and the weakness of the renminbi? Well, here we go again, with the Chinese currency hitting its lowest rate since 2007. Except things are rather different this time: China’s trying to hold the currency up to prevent an asset price rout rather than hold it down to boost exports.

Line chart of Renminbi per dollar showing China's currency pushes against trading band floor

Still, given all the capacity China’s adding in electric vehicles in particular, a glut of cheap Chinese products being dumped on to world markets when it’s currency is weak has the potential to add an exciting new dimension to the trade tensions between Washington (and Brussels) and Beijing.

The US Department of Commerce has released its latest plans to help diversify supply chains in the Indo-Pacific, but work by the Peterson Institute says the project runs counter to current trends and might well flop.

Relatedly, the New York Times reports on research suggesting that value networks supplying the US market remain heavily dependent on China, just not as directly as before.

Council on Foreign Relations fellows Jennifer Hillman and Inu Manak suggest a new way of regulating and controlling industrial subsidies.

The US has proposed expanding the financing power of the World Bank, a move generally backed in principle by the G20. Washington wants to counter the influence of China’s vast bilateral financing arrangements.

Italy is edging further towards pulling out of its partnership with Beijing’s Belt and Road Initiative, though Prime Minister Giorgia Meloni has said it does not want to jeopardise trade with China overall.

The EU has released its annual report on the use of its trade defence instruments such as antidumping and countervailing duties, as Brussels continues to create new legal tools to go after unfairly subsidised trade.

Trade Secrets is edited by Jonathan Moules

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