The G20’s Role in Fostering Trade and Investment

There is increasing optimism that the worst of the pandemic may be behind us. Whether the Omicron variants were the last major spikes of the coronavirus disease (COVID-19) or whether there are others still to come, global economic actors are turning away from the immediate demands of the health crisis and towards the challenge of reigniting long-run economic growth. Future growth will, as always, largely depend on expanding the capacity of cities, regions, and nations to sell their goods and services to each other. Yet, global trade faces stiff headwinds. The United States (US)–China trade war has put the world’s two largest economies behind obstinate walls of tariffs, rising global geopolitical tensions have complicated efforts to revive multilateral cooperation on trade, and the pandemic has severely disrupted both global supply chains and the movement of people across borders that is essential for international commerce. Members of the G20 must find ways to foster trade and investment in an environment in which the institutions and infrastructure underlying the international trading system are badly strained. Repairing the global trade engine will require concerted efforts on the part of the G20. Of primary concern, members will need to confront how globalisation has increased economic disparities within their economies. These disparities, which often fall along regional lines, have generated deep pockets of economic hardship, increased resentment towards the institutions of power, and heightened suspicion about the value of open borders. They also represent an intensifying spatial misallocation of resources within countries, which impedes growth. In this chapter, I review the uneven consequences of globalisation for G20 members and discuss approaches that could improve the prospects for trade and investment to deliver greater economic prosperity amongst heretofore excluded and marginalised groups. Having countries focus on fixing domestic distortions is an admittedly unconventional approach to fostering trade and investment. However, the damage done by three decades of globalisation has been intense and mandates commensurately intensive efforts to remediate these harms. Unless those left behind by globalisation – both in advanced and middle-income countries – come to feel that they have more to gain from the global trading system, the politics of openness are likely to remain toxic and an obstacle to cooperation. There are of course more conventional approaches to fostering trade and investment, which I will mention but not discuss in detail. Top amongst these is restoring the functionality of global trading institutions. As the ability of the World Trade Organization (WTO) to resolve trade disputes has eroded, countries have increasingly turned to bilateral or regional solutions. Admittedly, member countries, including the US, have frequently acted in bad faith when it comes to supporting the WTO’s mission. Be that as it may, in the absence of demonstrable evidence that the WTO works, the organisation may be increasingly sidelined. The G20 could achieve such a demonstration by, amongst other options, supporting WTO efforts to address climate change. Two promising options in this domain are clarifying, first, how border carbon-adjustment taxes could be made compliant with WTO rules, and second, how countries can promote green technology without violating WTO commitments. Unless the WTO is seen as leading on vital issues of the day, it will be seen as an anachronism.