During the next G20 summit, Obama will face the combined pressure and challenges of domestic and international economics, politics and diplomacy. As the summit host, the way in which he handles these issues will be a crucial test of leadership and trust for the man who promised to change America and the world.
For Obama, this meeting is a momentous one, because his performance and effectiveness as president is closely tied to its results. Perhaps this summit may not be as successful as the previous one, hosted in London by British Prime Minister Gordon Brown. On the eve of the summit, criticism has been rising against Obama both at home and abroad, including by America’s allies. These criticisms encompass everything from the domestic economy to international financial system reform, from trade protectionism to salary limits for bank executives and from global warming to nuclear disarmament and non-proliferation.
Despite Obama’s monetary policy reform and expansionary fiscal policies in response to the global financial crisis, the U.S., as well as the rest of the world, still needs effective and preventive action to solve the U.S.’s numerous economic problems. Unfortunately, Obama still lacks a clear plan, which worries not only Americans but the rest of the world as well. This is the first challenge.
The second challenge is a nearly irreconcilable rift which has grown between Obama and the E.U. The E.U. is disappointed with Obama’s regulation of the global financial system and efforts to tackle climate change. Despite their demands, the U.S. remains unwilling to establish a salary cap for banking executives, and this in particular has become an issue of contention. On Sept 17, E.U. leaders presented Obama with a declaration asking for clearer salary limits and better performance on the issue of climate change. French president Sarkozy went so far as to threaten to withdraw from the next summit if an agreement could not be reached on salary limits. Although this issue has been mediated, it remains unresolved.
Breaking the Promise of Free Trade
The third challenge is that Obama went back on his word and destroyed trust by breaking his promise to fight trade protectionism at the last G20 summit. In the space of a few months, he has taken several protectionist measures, in particular announcing punitive tire tariffs on the Sept 11, angering China and other emerging market countries.
Obama revived trade protectionism for political reasons, and while this would appear to be done out of self-interest, it benefits no one and in fact may end up harming the initiator. Even worse, by taking the lead in trade protectionism, Obama is setting a terrible example and encouraging other countries to follow suit. However, the worst thing is not just the emergence of trade protectionism, but potential trade wars set off by Obama’s gamble. Undoubtedly, this aggravates the current global economic crisis and damages prospects for recovery.
The fourth challenge is Obama’s punitive tire tariffs, which have angered China and damaged trade relations in light of the upcoming G20 summit. This will certainly create tension and awkwardness during Obama’s next meetings with Chinese president Hu Jintao at the U.N. General Assembly and Pittsburgh G20 summit. Obama has declared several times that U.S.-China relations are the world’s most important ones. The stable and constructive development of these relations benefits not just these two countries but the rest of the world as well.
Therefore, it is probable that Obama will take the initiative to show goodwill toward Hu Jintao and repair relations in their next meeting. Perhaps he will offer some specific promises to amend relations. Fortunately, politics are more important than economics for Chinese people, so Hu Jintao probably will not give him a hard time.
The Pittsburgh Summit Won’t Live Up to its Predecessor
During this summit, Obama is going to try to please China and convince it to continue buying U.S. bonds by advocating its promotion in the IMF, a stance the E.U. opposes. Although the E.U. has already stated that it does not wish to discuss IMF and World Bank adjustments and reforms at this summit, Obama has a different agenda, which is inevitably going to create conflict.
I predicted favorable outcomes for the first and second G20 summits, particular the second one (despite popular opinion to the contrary). In fact, the London summit achieved a surprisingly high level of consensus and positive results. Five months later, these achievements can be summed as follows: cooperation toward economic recovery and world issues and economic efforts toward the E.U., Japan, and the four BRIC nations (Brazil, Russia, India, and China). The U.S. and Chinese economies have stabilized, and the worst is behind us.
However, in the process of fulfilling the common goal of reforming the international finance system, trade protectionism problems arise. According to WTO statistics, up to 150 trade protection measures have been enacted, primarily by G20 countries, with the U.S. accounting for over 10 percent of this figure.
U.S. conduct does not just set a bad example, it also runs the risk of spreading trade protectionism and sparking worldwide trade wars. An agreement which would reduce, suppress or reject trade protectionism and review or annul current protectionist measures would greatly benefit struggling nations. Unfortunately, this is unlikely to happen, because since Obama is unwilling, and so are other countries. Little progress will be made on the summit’s other issues either. The pressure and challenges Obama faces in this summit cannot be readily resolved, and thus this summit will be a disappointment to Americans and the rest of the world.