G20 as an Important Actor to Smooth Geopolitical Risk

The G20 is currently facing geopolitical risks

The G20 came into existence to share power with emerging nations, including China. This is easier said than done. Emerging countries have memories of history, humiliation, or colonization, and developed countries are not always ready to share power.  While the world has long changed away from colonization and emerging countries are fully represented in existing institutions, emerging economies want to see their power increase further and believe their economic weight deserves it. In other words, the developing world is uncomfortable and unsatisfied with the status quo. Still, the reality is that the proposals made to change the status quo are creating new dependencies that are not necessarily better. In particular, China is pushing back against the West and existing institutions, but the question is what kind of world China is pushing for.

Another critical question is how the G20 can play its role. A classic example is the global financial crisis in 2008, with the joint decision that the Fed would create a currency swap line system, to support emerging market currencies. Similarly, a joint decision was taken to conduct fiscal stimuli globally to mitigate the impact of the global financial crisis, which started in the US. Since then, G20 cooperation has been less effective in the face of the pandemic; although the FED extended its swap lines again, there was less success in vaccine cooperation. The fact that US-China relations have evolved from engagement to strategic competition or rivalry does not help.

The question we face now is to find the key issues that are dramatic enough for the G20 to abstract from great power competition and to carry out more cooperation. Climate change is important because, in this area, the efforts of a few countries cannot change the end result. The good functioning of global supply chains is another important area because it involves cross borders activity, and everyone can benefit from the worldwide supply chain.

The Establishment of a Mature, Transparent and Smooth International Cooperation Mechanism

Everything has relative winners and losers. Although everyone hopes to achieve win-win cooperation, the problem always lies in who gets more benefits, and, sometimes, unavoidably, there may be outright losers for what is a better solution overall. Because of this, we need to design a more mature cooperation mechanism to mitigate the gap between winners and losers. We may end up with a transfer mechanism that includes financial, technological, and even human capital resources. It is important, but more is needed, that the agency adopts a more transparent transfer mechanism. It also needs to ensure the smooth operation of the transfer mechanism. That is actually how the EU has operated for many decades and has survived several major shocks, including the European sovereign crisis and Russia’s invasion of Ukraine. In the first case, the South received transfers from the North. This time, Germany has been hit the most due to its dependence on Russian gas and Eastern European countries due to the massive influx of refugees. Therefore, we must realize that resource transfer is not directional but complementary. To be successful, we need to measure accurately who is subsidizing whom and who is supporting whom. We need fairness in these transfer mechanisms. This mechanism can also be used in the field of climate change. Different countries have different capabilities; China has technical capabilities, and Europe also has technical and standardization capabilities, including establishing carbon emissions trading systems that can be linked cross-border.

So what I advocate is to establish a genuine cooperative concept. Not just big words and aspirations but a real measurement system that records the transfer of technology, knowledge, capital, and other resources into clear accounts, which can restore the trust of the G20 in the global financial crisis. The important value of the G20 is that it can ease the pressure on the international community during the competition between major powers by bringing in more peers to do it.