G20 losing its role in the neo-Cold War
The author, a professor of economics at the Ewha Womans University Graduate School of International Studies, is president of the Korea Foundation for Advanced Studies.
The G20 summit in Bali, Indonesia earlier this month underscored how the organization has lost its role and betrayed its legacy as the global go-to at times of crisis. The leaders of 19 major economies plus the European Union failed to come up with emergency measures to deal with grain and energy bottlenecks from the Russian war with Ukraine since February and cope with global inflation from supply disruptions.
Leaders also were sitting on their hands amid the galloping pace of rate increases in the U.S. to tame inflation at the expense of the global economy, which has stoked rate increases by central banks everywhere. They displayed helplessness against the repercussions of stagflation — a dangerous mix of recession and high prices — on global economies and markets.
The G20 summit started in 2008 as an intergovernmental body to address the global financial crisis following the Wall Street meltdown. The United States found the Western-led G7 alone could not handle the crisis. The Bush administration rounded up leaders of the 20 largest advanced and developing countries upon judgment that a 1930s Great Depression-like global crisis could not be avoided without the help of emerging economies like China.
In G20 summits in Washington late 2008, in London and Pittsburg in 2009, and in Toronto in 2010, leaders of the group repeated the same mantra: keep trade barriers low as protectionist measures of levying high tariffs on others while subsidizing local products could be suicidal for all.
Leaders of the G20 attributed the Great Depression in the 1930s and its devastating impact on the world economy for a lengthy period to competitive protectionist moves. G20 leaders pledged not to repeat the same mistake. Their determination and concerted action helped stabilize the markets. Although the 2008 financial crisis led to a global recession, it fortunately did not build up to another Great Depression.
Despite a looming crisis again, the latest G20 summit held 14 years after the global financial crisis failed to take any meaningful steps to stabilize the markets. Although alarm bells are sounding loud and clear, leaders were busy boasting of the superiority of their regime and governance style rather than seeking cooperation. Instead of taking a determined joint action as seen in the initial stages of the G20, the United States and China wasted their energy checking one another.
The scene of U.S. and Chinese leaders exchanging tensed words over Taiwan and human rights issues to champion the supremacy of their systems was unimaginable just 14 years ago. What do these remarkable developments mean for South Korea’s economic diplomacy and strategy?
The establishment of the G20 summit in 2008 helped South Korea achieve a higher profile on economic diplomacy stage. Until then, the Organization for Economic Cooperation and Development (OECD) was the highest venue for Korea at the economic level. South Korea joined the club of rich countries through its fast rise to one of the world’s five largest manufacturing economies. But its role was limited as South Korea remained underdeveloped in the services and finance.
The G20’s treatment of South Korea was quite different. South Korea was invited as a founding member of the group representing Asia together with Japan and China. Japan — the sole member of the G7 — was not happy about standing together with Korea. The EU wanted to include the Netherlands and Spain instead of Korea. But the U.S. chose Korea.
The G20’s original design has noticeably weakened after the United States and China clashed. After President Xi Jinping came to power, China asserted its economic prowess and demanded the U.S. respect its newfound power in an entirely different fashion from the past, when the country focused on adapting to the West-led global order for economic progress.
The Obama administration rounded up Japan and other Asia Pacific countries to form the Trans-Pacific Partnership (TPP) so as not to let Beijing rewrite the 21st century global trade order. Washington regarded the birth of the China-led Asian Infrastructure Investment Bank (AIIB) as a challenge to the U.S.-led World Bank and International Monetary Fund (IMF) framework.
As a country that has greatly benefited from multilateral free trade regimes, Korea should have strategically chosen both the TPP and the AIIB. But the government at the time decided to join AIIB, but not TPP. Seoul ended up backing Beijing on key economic fronts.
Seoul based its decision to bypass the TPP on the need to strike a free trade agreement (FTA) with China, as it already struck a free trade deal with the U.S. The TPP was led by the U.S. and joined by Japan and other majors in the Asia Pacific region. The TPP platform would have widened the FTA spectrum to multilateral levels, but Korea’s strategic mindset failed to keep up.
Many trade strategists advised Seoul to join the TPP for greater strength in its FTA negotiations with Beijing. But policymakers at the time thought they had to make a choice between the TPP and a bilateral FTA with China. Korea also had wishful thinking that China could influence North Korea on denuclearization if it joins the China-led AIIB, not the TPP. The governing power could not see through Beijing even as it showed an ambiguous stance after North Korea’s sinking of the Cheonan in 2010 and its shelling of Yeonpyeong Island later that year, because it failed to differentiate between what’s hopeful and possible.
The lack of ability to fix belief based on strategic thinking, observation and evidence has brought about painful results. A bilateral FTA with China has come to exist only in name as Beijing did not open its market favorably toward South Korean products. The services and investment sectors remain untouched. Beijing punished Seoul’s self-defense move for security with economic retaliation. Why has Seoul failed to explain to China — and to itself — that joining the TPP was natural for the economy which prospered thanks to free trade.
Korea also failed to clearly explain to the U.S. the reasons for joining the AIIB. Seoul was among the last founding members to join the AIIB towards the end of March 2015 deadline. It only was able to show courage to move when the UK, a close ally to the U.S., declared its joining, followed by France, Germany, and other major western countries. South Korea jumped on the bandwagon at the last minute, as it could not convince America of the need for its connectivity in Eurasia.
The U.S. midterm election results suggest America is not ready for a truce with China. The Biden administration will push ahead with the new value chain on chips and other key strategic assets by excluding China. People ask whether we should choose the U.S. or China. But the answer is clear. The choice for a country founded on democracy and market economics is clear. The question on the choice cannot be a strategic one in the neo-Cold War of economic security.
There should first be a judgment on whether the realignment in supply chains based on value-based alliance is necessary. The question requires a cool-headed answer not guided by wishful — and ideological — thinking. The next question should be what could be our offsetting strategy if we really cannot sustain exchanges with a certain trade partner at past levels and pace and may even be forced to give up its market. Instead of blindly following the trend, we must seek out aggressive measures to offset possible damage through networking with the countries in the alliance group.
The downing of the G20 era means the end of blind globalization when exchanges were possible even under differing regimes. Under the neo-Cold War era, the G20 has lost its raison d’être and beckons the return to alliance. The opening of the alliance era means Korea must not repeat the past mistakes originating from a critical lack of strategic thinking and action.
Translation by the Korea JoongAng Daily staff.
with the Korea JoongAng Daily
To write comments, please log in to one of the accounts.
Standards Board Policy (0/250자)