Cato Institute scholars comment on the vital issues surrounding the G-20 summit that begins Thursday in Pittsburgh

Thursday, September 24, 2009

Ian Vásquez, director, Center for Global Liberty and Prosperityivasquez@cato.org:

"Realistic expectations" should be the watchwords for the G-20 this week. If the G-8 could not effectively tackle major world problems, there is little reason to think this even more diverse and unwieldy summit can do so.

The G-20 is made up of a group of rich countries who disagree on leading issues, and a diverse group of developing countries with disparate interests. The agenda is so broad—countries will deal with a set of complex issues including global warming, international financial regulation, trade, aid to poor nations, and reform of the International Monetary Fund—as to make it of little practical use.

Reality also undermines the idea that the G-20 was needed to coordinate macroeconomic responses to the global financial crisis. By the time the G-20 last met in April in response to the crisis, countries had already responded to the crisis on their own and global markets had already hit bottom and had begun recovering. A coordinated exit now also makes little sense since economic conditions vary widely within the G-20. Some countries have high unemployment, some do not; some have low or negative growth, some have maintained high growth; some countries are still seeing deflation, some have worrisome inflation.

The G-20 is a political forum in which we should not invest too many expectations. Were G-20 members to declare their commitment to free trade, we should be pleased with the result.

Daniel Griswold, director, Center for Trade Policy Studiesdgriswold@cato.org:

World leaders should have one objective at the G-20 summit: keeping the global economy open for business. The summit needs to produce more than lofty statements.

The developed nations, led by the United States, must renounce any further backsliding toward trade protectionism. They should pledge to reduce remaining trade barriers against agricultural products and other goods of special importance to developing countries. The developing countries, meanwhile, should announce steps to open their markets further to manufactured products and services trade to stimulate growth and modernization. All participants should renew their commitment to conclude a comprehensive trade agreement at the World Trade Organization ministerial meeting later this year.

The world economy cannot recover without a rebound in trade, and trade cannot thrive if governments are raising tariff and non-tariff barriers. The most important task of G-20 leaders in Pittsburgh this week will be to return the global economy to the path of openness and expanding trade.

Daniel J. Ikenson, associate director, Center for Trade Policy Studiesdikenson@cato.org:

I'm always skeptical when world leaders convene for the purpose of achieving consensus about how to address some global "problem." When politicians with oversized egos don their imaginary capes to battle foes both real and imagined, expect more regulation, more government, less economic growth, and less liberty.

Rising protectionism is a legitimate concern. However, new pledges to avoid protectionist measures are unnecessary. Instead, G-20 leaders should agree to have a crash course on the global economy. They should lock themselves in a Pittsburgh conference room and learn, once and for all, that trade cannot be characterized as an "us" versus "them" proposition or as "our" producers against "their" producers.

In our globalized economy, the definition of a "domestic" company is elusive. The factory floor has broken through its walls and now spans borders and oceans so that citizens in Asia and North America, for example, typically collaborate, through global production and supply chains, from product conception to consumption. Under this set-up, trade barriers represent huge costs to business, workers, and consumers, primarily in the countries implementing them.

The largest American steel company, Arcelor-Mittal, is majority Indian-owned with headquarters in Luxembourg. The largest German steel company, Thyssen-Krupp, is completing a $3.7 billion green field investment in Alabama to produce carbon and stainless steel. Approximately 50 percent of the value of U.S. imports from China is actually Chinese value-added. The rest comprises materials and labor from other countries.

These huge increases in cross-border investment and the proliferation of global supply chains should be enough to convince policymakers that protectionism is, as they say, so last century.

Swaminathan S. Anklesaria Aiyar, research fellow, Center for Global Liberty and Prosperity:

Countries at the G-20 summit at Pittsburgh should focus on:

• supporting free trade;
• devising individual exit packages from the global economic stimulus; and
• opposing irrational caps on the carbon emissions of developing countries.

The U.S. has levied import duties on Chinese exports of tires and steel tubes, despite its promise at the last G-20 summit to refrain from protectionist acts. Many other countries, including developing countries, have imposed anti-dumping curbs of dubious merit. All countries need to rein in protectionist impulses and support free trade.

The last G-20 summit agreed on a coordinated global fiscal and monetary stimulus. Some politicians now propose a coordinated exit from the stimulus, as the recession is ending. This makes no sense, because rates of inflation, growth and unemployment vary dramatically across countries. Countries with higher growth and inflation rates should exit much earlier than those with falling GDP and prices.

The coming Copenhagen conference in December is also on the G-20 agenda. The U.S. seeks emission reductions from developing countries with per capita emissions are tiny. The G-20 should accept the Indian proposal that developing countries should pledge never to exceed the per capita emissions of developed countries. Developed countries should pledge to avoid trade sanctions on developing countries that refuse to accept such caps.

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