G20 members disappointed with China and the US

The US and China will come under pressure to ease trade tensions at the forthcoming G20 summit in Osaka as the Japanese presidency seeks to steer the world’s most powerful economies away from confrontation. Financial Times reports in its article Early talks reveal G20 members’ frustration with China and the US that while the summit at the end of the month will be dominated by the US-China trade war, with Donald Trump of the US set to meet China’s Xi Jinping, the rest of the world is pushing back at both giants over practices that undermine the global trading system.

Officials familiar with the pre-G20 trade discussions say that China’s model of state capitalism and Washington’s unilateralism under Mr Trump — both features of their trade war — have been sources of friction and debate heading into the summit.

At a recent meeting of trade ministers, China was cornered on industrial subsidies and steel overcapacity while the US agreed to discuss dispute resolution at the World Trade Organization, according to three participants in the talks. The conclusions and language from that meeting in Tsukuba, Japan, will shape the communique at the Osaka summit, offering a road map to ease global trade tensions — if Mr Trump and Mr Xi choose to embrace it. “Rather than papering over the differences, we decided to make them clear,” said a senior Japanese official involved in the talks. “The G20 is a process of peer pressure. The essence of what we agreed in Tsukuba will be incorporated in Osaka.”

The trade talks in Tsukuba were overshadowed by a simultaneous meeting of G20 finance ministers. However, participants say the trade talks were far more important to the Osaka summit. New dynamics emerged: with the US and China so focused on their bilateral trade war, the rest of the G20 could turn up the heat on both sides.

China ended up isolated by 19-to-1 over the use of subsidies to give its industries a trade advantage. That led to an unusual statement in the communique, which is supposed to represent a consensus, noting that “many members” want tougher rules. 

Steel overcapacity was also China versus the rest until Saudi Arabia backed Beijing at the last minute, delaying the official communique, as the issue was moved to a separate chair’s statement.

However, Saudi Arabia only backed the G20 principle of consensus — not the substance — and will have to decide whether it is willing to play the spoiler again in Osaka. “There was a big push on China to maintain the commitment on steel agreed at the last G20 summit,” said the EU official.

On other topics, the pressure was on the US. A major source of friction has been the fate of the WTO’s dispute resolution mechanism, which is in danger of collapse because the US is blocking the appointment of appellate judges. The US says the WTO judges have often exceeded their mandate and imposed new obligations on members. 

Washington has been pushing for reform of the Geneva-based global trade body but thinks the G20 is the wrong forum to discuss dispute resolution. In Tsukuba, it agreed to act on WTO reform “with a sense of urgency” and “consistent with the rules negotiated by the WTO members”. The latter was seen as progress by officials from some other countries because it precludes any US demand for a return to the non-binding, pre-WTO system of dispute resolution. 

 “If this is confirmed by the leaders [in Osaka], it will be a major step towards resolving the current impasse,” said the Japanese official. A western official involved in the G20 discussions said the important thing was that the US did not “go backwards at all” on the future of the WTO. A US official said the WTO language simply restated its position staked out in Geneva.

While the Tsukuba meeting did not adopt past language on “fighting protectionism”, dropped at the G20 in Argentina last year, it came up with a new line that may be reused at the Osaka summit: the G20 will “strive to realise a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, to keep our markets open”. 

In the chair’s statement — and thus not agreed by the US — there was tough language on the impact of trade wars. “The trade war between the US and China is still very heated,” said the Japanese official. “The concern among other G20 members is getting stronger.”