The G20’s Summer Summit Summary
In the final paragraph of last week’s ‘beyond the headlines’ we highlighted trade tensions building between the US and China ahead of the G20 meeting: Not conducive for a successful meeting, but with low expectations we wondered if this might set the scene for positive news to emerge.
Thankfully, common interests which keep both economies strong prevailed. President Xi and President Trump said that trade talks to avoid the need for further tariffs between the two super powers would resume. The doomsters who said this wouldn’t happen were wrong and the stock market rallied on the good news, reaching a new high as you can see from the chart below.
Historic Performance of S&P 500
Source: Bloomberg, July 2019
G20 meetings are regular affairs, sometimes uneventful sometimes not. In December 2018 the gathering of global super powers took place in Buenos Aires, Argentina. Six months on they met in Osaka, Japan, a change of venue, but a similar focus on political relationships, global economic progress and the environment.
G20 is an abbreviation of ‘The Group of Twenty’. It is an international forum bringing together 19 of the world’s leading industrialised and emerging countries. The European Union is represented as a single member bringing the total to 20.
Underestimating the influence of the G20 is a mistake because collectively they make up;
• 90% of the gross world product
• 80% of world trade
• Two-thirds of the global population
• Approximately half of Earth’s land mass.
The full list of members is;
Table of G20 Members
Source: G20 Osaka Japan, July 2019
Although different aspects are discussed at each gathering the greatest amount of focus at the Osaka meeting was on 3 key areas; all important topics for the global economy:
Technology: G20 members are excited by the opportunities that new innovations in technology can deliver. They discussed Block-Chain, Artificial Intelligence (AI) and 5G, as well as the growing benefits from robotics on a global, ageing, population. However, caution around the potential implications surfaced i.e. displacement of jobs, unintended societal change and increased growth levels in cybercriminal operations. Maintaining strong and stable domestic economic security is at the forefront of minds after the furore around Chinese company Huawei who have a key role providing new 5G technology to western nations. They are under the scrutiny of the US intelligence agencies and the UK’s National Cyber Security Agency (NSCA).
Climate change: In the previous summit, G20 members expressed disquiet about the US administration and their seemingly disruptive role. Contrary to the current upswell in public opinion, favouring tackling climate change, the current US administration under Donald Trump is withdrawing from the Paris climate agreement- the long-term goal of this accord is to keep global average temperature from rising above 2°. Criticism of the US decision to pull out was repeated by Emanuel Macron of France and Theresa May, but scrutiny switched from the US to the hosts, Japan. Following the Fukishima nuclear disaster in 2011, Japan have lost output and confidence from nuclear power plants and are becoming increasingly dependent on coal which is now a major source of energy (and pollution). They are the only developed country still building new coal plants. Further, they are the biggest funder of coal projects internationally. Shinzo Abe, Japan’s Prime Minister, laid out plans to adopt “carbon neutrality”, by the end of the century, but without naming a specific date.
Trade: Going into last week’s meeting strains between super-powers China and the US were very evident. Hopes of a thaw, portrayed by the media as being extremely unlikely, turned out to be a reality. In typical Trump fashion he wrong footed the doomsters. Both countries agreed to continue negotiations and Trump showed that his ‘unexpected about turns’ are emblematic of his ‘unusual’ style. This was evidenced further when he travelled to North Korea after the G20; here he met Kim Jung-Un in the DMZ (Demilitarised Zone), the invite of which came via Twitter.
The focus on US and China trade relations at the G20 commanded most attention but around the same time, on the 28th of June, the EU and Mercosur, the South American trading bloc made up of Argentina, Brazil, Paraguay, and Uruguay, announced a new political agreement. Past negotiations between the parties had failed because of protectionist policies pursued by the EU on manufacturing and Mercosur on agriculture. EU fans point out that the new landmark deal bodes well for future EU trade talks with New Zealand and Australia. However, before getting too excited note that the EU/Mercosur agreement took 20 years to negotiate!
The key message from leaders at the G20 is that heightened geopolitical tensions restrain investment, curtail global economic development and damage growth. Trump and Xi are intent on finding some form of resolution on trade, although even after this is settled jockeying for global dominance between the two parties is unlikely to end any time soon.
Back to the negotiating table on trade after the G20 is a better outcome than many had been expecting. Global platforms like the G20 offer an opportunity to air differences as well as reach a consensus on matters which affect us all. The next G20 hosts are Saudi Arabia, Italy and India so look out for more headlines as each new summit gets under way.