By: Insa Ewert and Jan Philipp Pöter
Within the first few months of the U.S. Trump administration, the tide of global trade and climate politics has turned rapidly. While China’s President Xi Jinping and Premier Li Keqiang present China as a defender of global free trade and economic globalisation, in contrast, Trump proposes a protectionist approach across a number of policy areas where international cooperation is most prevalent. His ideas on trade include increasing tariffs, back-tracking on or renegotiating existing trade partnerships, and—through Treasury Secretary Mnuchin—blocking a statement supporting the ongoing commitment for free trade at the G20 finance minister meeting in Baden, Germany. Combined with the withdrawal from the Paris Climate Accord, the U.S. has not only diverged on policy issues of global reach, but is signalling a diminished commitment to global governance institutions—highlighted by Trump’s attitude at the G7 meeting earlier this year.
Ahead of the G20 summit in Hamburg from 7-8 July, anticipation is high as to whether the Trump presidency will continue on its current course.
At the same time, the G20 summit presents an opportunity for the EU, in particular Germany as this year’s group president, and China, as last year’s president, to renew its commitment to international institutions. Led by the “Troika”—an informal group consisting of the current (Germany), previous (China) and the subsequent group president (Argentina)—the G20 possesses a powerful tool to emphasize continuity beyond individual agendas. Taking up initiatives from last year’s meeting, this year’s agenda emphasizes global free trade, climate change, development cooperation, investment partnerships with African countries, and strategies to deal with global refugee streams.
A litmus test for global leadership
Following a year of turbulent elections among the G20 states, this meeting will be a litmus test for the direction going forward and will further determine the leaders championing multilateralism through established institutions. It remains to be seen to what extent statements by Chinese leaders will translate into effective policy changes in trade or climate policies. The debate on China’s market economy status will likely serve as a basis for further tariffs on Chinese imports. However, a significant number of presidential advisors, cabinet members and other significant political leaders in the U.S. openly reject Trump’s position when it comes to limiting free trade policies. These voices, coupled with those of an American industry heavily dependent on access to global supply chains, provide much-needed oxygen to the Trump vacuum, and may constrain any unilateral behaviour.
Beijing understands this context and the constraints facing Trump well. Xi is aware that a policy of “America First” will not be beneficial to the U.S. in the long run, and that Trump must moderate his proclamations. In particular, Xi identified and took advantage of this window of opportunity, positioning China as the new leader of global free trade and multilateralism in the Trump era.
But, there are comparable factors dampening optimistic Chinese announcements. Foreign chambers of commerce in China, especially the EU Chamber of Commerce, have long been complaining that the Chinese government’s numerous public promises to enhance liberal market forces have not been followed by measurable actions. Skepticism is indeed warranted, as economic reforms remain a sensitive issue for Beijing, which must strike the right balance between decelerating economic growth and maintaining social stability. In short, China must prove its ability to deal with overcapacity, especially in the coal and steel industries, limit the environmental impacts of its economic policies, and reduce the economic disparities between the eastern, central and western parts of the country.
Additionally, this year Xi will have to spend considerable energy and focus on domestic politics. In the run up to the 19th Party Congress this autumn, Xi must position his trusted allies in key positions in order to maintain his power base in the long-term.
Steering the Sino-European relationship
Recently, the relationship between Europe and China has been strained as well. The latest EU-China summit in Brussels ended without a joint communique due to disagreements over trade issues. Frustration and doubt are no longer expressed behind closed doors, but have been cast in public light over a number of landmark transactions. The volume of Chinese investment in the EU has increased significantly on a year-to-year basis. For instance, Chinese investors spent more than EUR 35 billion on German companies in 2016—more than ever before. The cases of investment in Kuka, a leading German innovator in the robotics space, for which the German government recently revoked its “go ahead,” as well as the discussion around a proposed Chinese takeover of high-tech chip manufacturer Aixtron, serve as just two contested examples where Chinese investments into European sectors of strategic interest have not been warmly welcomed. In consequence, political groups in the European Parliament, as well as Member States, are urging the European Commission to tighten rules for foreign investment.
This week’s G20 summit provides the right setting for Germany and China—as successive group presidents—to assume leadership roles and counter protectionist tendencies. Their guiding principles for the days ahead should therefore be to improve the investment climate, as well as support the EU and China in strengthening inclusive multilateralism.