Who's leading the world now?
As Germany prepares to host this week's G20 meetings in Baden-Baden, one question will hang over this spa town like a cloud: "Have we left the world order that lasted 70 years under Pax Americana?" As the group looks for answers, its discussions and eventual pronouncements on four topics will be significant.
The forces that helped US President Donald Trump rise to power have not been placated by his election. The changes expected to be made to US trade policy are being echoed around the world by anti-globalization politicians and voters. Indeed, it speaks volumes that China's president, Xi Jinping, is expected to be the meeting's most vocal supporter for global free trade. Unlike at previous G20 summits, we don't expect to see any unashamed celebration of free trade at this year's meeting. Instead, participants will unite under the banner of "fair globalization" in a bid to signal that a new form of collaboration is possible.
Because of its high trade surplus, Germany is facing reproach from G20 members running trade deficits – which not only includes members in Europe, but the United States as well. It is therefore quite conceivable that Germany will issue cautious signals about increasing government spending in areas such as defense that could lower the trade imbalance.
While connected to trade surpluses, no large country meets all of the US government's formal criteria for currency manipulation. What's more, Germany is a euro-zone member and therefore somewhat shielded from these accusations. As such, these discussions may be heated, but they are not likely to produce any concrete sanctions. China, however, will remain under careful scrutiny.
Establishing a global framework for the smooth functioning of financial markets is crucial for creating a level playing field for the international banking sector. Yet if there is no agreement among G20 members, Europe's banks will suffer more than their US counterparts. This seems particularly relevant given the United States' current flirtations with deregulation, including a possible repeal of the Dodd-Frank Act.
The G20's role in a fractious world
In conclusion, the meeting will reflect a world of increasing geopolitical confrontation. And while concrete actions will be few and far between, the willingness of participants to break with consensus will be significant. Nevertheless, in an increasingly fractious world, the G20 will be more important than ever in its function as a center for co-operation.