When top leaders recently met at the Group of 20 Summit in China, they were faced with a powerful warning—that the populist mentality spreading across developed nations is a threat to worldwide trade and growth. Top economic leaders of the world’s largest economic organizations urged G-20 leaders to keep goods trading across borders.
Christine Lagarde, Managing Director for the International Monetary Fund addressed the group in a panel discussion and warned about trade outlook for the next few years. She also urged business executives to lobby global governments to keep trade flows up.
“Trade is way too low and has been for a long time,” she said. “There is at the moment an undercurrent of anti-trade movement….If there is no international trade, if there is no cross-border investment, if services, capital, people, and goods do not cross borders, then it’s less activity for you, it’s less jobs in whichever country you are headquartered.”
The warning was echoed by Roberto Azevedo, director general of the World Trade Organization.
The G-20’s Role in Global Trade
The G-20 is a group of top government and central bank leaders from 20 major economies around the world that aims to stabilize the global economy through actions that are bigger than what any one nation can do. All together, the G-20 makes up 85% of the gross world product, 80% of world trade, and 75% of the world’s population.
Recently, many countries have started limiting their global trade, focusing instead on populism, or returning the trading and manufacturing power to their own people. Since G-20 countries represent so much global trade, the worry is that the international trading economy could suffer or collapse if more nations follow suit. In particular, the state of global trade is in danger due to the U.K.’s decision to leave the EU, which could have unknown effects on the global economy, and the fact that both U.S. presidential candidates are distancing themselves from the country’s typically optimistic view on trade.
Although G-20 nations account for the vast majority of global gross domestic product, their combined growth slowed to 2.7% in 2016 and is expected to bottom out at 2.4% this year. G-20 leaders are being encouraged to revitalize growth, which is expected to grow slightly to 3% in 2017 and 3.1% in 2018. What the G-20 does sets the stage for the rest of the world, which is why many leaders and economists are concerned.
Recent Trade Movements
Global trade continues to evolve and has been dimming lately, with one of the largest potential trade partnerships losing steam. The proposed Trans-Pacific Partnership, led by the United States, would join 12 nations that make up approximately 40% of the world’s economy. Both U.S. presidential candidates oppose the deal, which doesn’t include China.
Talks on a proposed trade and investment agreement between the U.S. and the EU have also slowed. The agreement, known as the TTIP, has all but broken down, according to some officials involved. According to representatives from France and Germany, the U.S. was unwilling to offer anything substantial to the agreement, reflecting the notion of increasing protectionism in many western countries.
Challenges to Improve Trade
Canadian trade minister Chrystia Freeland acknowledged the fears that protectionism is growing and potentially harmful.
“Those fears people have are real,” she said. “If we can show people that trade is good not just for Wall Street or Bay Street or the City of London but is good for small companies, then we’ll be doing a huge amount to push back against that protectionist sentiment.”
However, many global leaders are stuck between acknowledging and representing the populist thinking in their countries with finding ways to grow the global trade economy. Japanese Prime Minister Shinzo Abe spoke strongly at the summit, telling leaders they have a “political duty” to avoid protectionism and populism.
As globalization grows and global trade trends change, the entire worldwide economy could be in danger. No matter the outcome, it seems almost certain the global trade will change in one direction or the other.