G20 Hamburg 2017: How illiberal is the liberal world order?

Country Risk Chile focuses on the G20 summit 2017.  Does "leadership" matter in the current world order? The following article attempts to give some insight into the contradictory overlapping of illiberal and liberal forces blowing against each other in multilateral organizations and the strategic role played by leaders. 

Hamburg, the venue:

Anti-globalization protests in Hamburg ranged from the artistically-innovative marches to the aggressive-violent riots. Protesters marching on the street and anarchists torching cars in a city known for being a leftist stronghold are reminiscents of the Seattle protests against WTO, back in 1999.  While the Hamburg protests did not impede or have a major impact on the summit agenda, the 1999 Seattle grassroots movement was a turning point in what is the global elite's shift to include "poverty reduction, human rights and the need for fairer trade arrangements" (Stiglitz, 2006) in today's topic discussions. In 2017, the revolt against a liberal institutionalized world order now is coming from the highest spheres of power, and not precisely in the name of inclusiveness, but instead calls for a protectionist assault on the international system, to protect borders and close the gates to the negative effects of a relentless globalized order.  The illiberal winds are waging on the liberal sea.  In the cooperation game, accords are possible nonetheless.  A realist will cooperate on the grounds of rational choice. A liberal will cooperate on the grounds of relative gains and out of moral conviction. Either way, multilateralism can give incentives to both. 

That explains why Trump went to Warsaw first en route to the G-20 summit and pledged there to uphold NATO's Article 5. Not on the foundations laid out by Kantian's perpetual peace, but rather on a Hobbesian idea of self-help, and self-interest.  The trip coincided with the Three Seas initiative, whereby 12 countries from Estonia to Croatia, agree to a gas deal collaborative project, which counterbalances the Grand Nord gas pipeline from Russia to Germany and the rest of Europe, which gives Russia geopolitical power. Trump sees the opportunity for job creation and deal-making, Europe receives America's compromise to defend NATO countries, and in the likelihood of more sanctions on Russia, the project gains business impetus  (Slawomir Sierakowski, Project Syndicate)

France's Macron, on the other hand, is rallying countries to uphold the Paris Accord and proposing reforms to boost the economy and bring citizens and the European project on the same tune. Just like a disruptive populist would do, Macron is shaking up the foundations of a big machinery like the EU. His goal is to reach a new accord on the macroeconomics structure to help survive the Eurozone: his disruptive populism prescribes that tighter worker rules should be introduced, "so that companies find it harder to employ low-wage Eastern workers".  The disruptive centrist reformist drive in Macron is pushing Merkel's EU's to achieve the old promise of greater economic and social "well-being"

Therefore, the questions would be:  Does leadership matter?

And secondly, how illiberal is the Liberal World Order? While some are keen on closing borders and gates, others are resisting the nativist drive. 

Country Risk Chile assesses the G20 summit July 8-9 as a key moment in the face of global trends, threats, and opportunities.

1. Does leadership matter? 

The Macron factor:    France's Macron not only seems to have halted the wave of populism (at least for now)  in Europe, but he looks fresh energy to invigorate politics and the push for the reforms that France desperately needs to help social cohesion.   New faces, female participation, and the launch of a package of reforms aiming to establish confidence in a capitalist democracy by way of reforming the pension system and liberalizing the job market (not without any opposition from strong leftist unions who have gained considerable leverage and will require compensation for not going on strike). Reforms also aim at reducing the number of Members of Parliament and revitalizing the EU project.

But Macron’s disruptive start should be seen as vital energy for EU to reboot with legitimacy for its population, into a post-neoliberal order, which should overcome the problems deriving from "the creation of single currency without establishing a set of institutions that enabled a regions of Europe's diversity to function effectively" (Stiglitz, Project Syndicate, 2016)

To that end, some voices argue that a strong EU relies on a stable euro, and its viability in the long term (Lucrezia Reichlin, Project Syndicate).   In other words, stepping out of the cage. The "euro cage is the fiscal and monetary rectitude, which has removed the exchange rate and inflation as critical cushions against external shocks" (Kenneth Rogoff, Project Syndicate)

In what it seems to be a Merkel-Macron value-driven alignment, and pragmatically driven reforms,  France's Macron is serving the EU well. Macron stands out as the young, independent actor from politics, who can use his charisma and a fresh drive to push the EU for reforms that otherwise would not have seen a green light.  Macron, and the cross-partisan party En Marche!  have the potential of definitely serving as a fortress around the economic bloc, as an ally to Europe and Merkel.  In doing so, Macron is the game changer.  Merkel's EU has now a "window of opportunity" to carry out those needed reforms with less exposure to political costs, due to the external shock of populism, Brexit and Trump's protectionism.  A dose of “realism” in a liberal world order, in tune with the values they uphold.  

So far, this "Mercron" alliance has seen the proposal for a shared eurozone budget and finance minister, and an EU security union to deal with terrorism and border controls (Mark Leonard, Project Syndicate)

The Trump factor:   with Donald Trump's America First precepts, we are witnessing a nativist America. America's inward-looking and protectionist approach today are perceived as a threat to the liberal world order which America herself helped to build in the wake of Second World War.  Trump's criticism of NATO, his harsh words on deficits in trade deals which affect America’s fiscal coffers, and then the investigation of an alleged Russia meddling into the presidential elections, plus suspicions over Trump’s aides and Russia connections, are driving the world of politics on edge.  Six months in,  and intelligence units such as BMI Research Group,  and the Economist still highlight the risk of a unilateral raise in tariffs,  triggering the fear of all fears:  a trade war and the collapse of a rules-based system.  Despite the menace, the fears have not been taken shape, though they are still looming. Nonetheless, and as result of a USA retreat from world's affairs such as the Paris Accord, the vacuum has been seized by “the others”:  

China in Davos pledged to a globalist order,  ex TPP countries are gathering to counterbalance America’s withdrawal and the revival of the mega deal,  Latam’s Pacific Alliance is pushing for greater integration,  and against protectionism.   Japan and the EU have signed a deal,  the EU and Canada have signed another.  EU and Mercosur on the brink to sign theirs.

What is extraordinary here is Trump’s assessment of the G20 summit.  From his reluctance to join multilateral organizations to his personal account of what was accomplished in the summit, Trump's video on a successful G20 summit includes the soundtrack of Make America Great Again and highlights the successes in the G20 summit. What are those? An agreement to go forward on the Paris Climate accord, without America,  but with Trump's plea to participate in "helping countries access and use fossils fuels more cleanly and efficiently".  

And on Trade & Investment,  Trump managed to get his line in the document but with a careful wording. The G20 summit declaration rejects protectionism and will continue to fight it,  including all unfair trade practices and recognises the role of legitimate trade defence instruments in this regard".    

And with America's adherence to Article 5 in Warsaw, strategically planned in a right-wing setting, with a favorable, cheerful audience, Trump was able to avoid media intrusion to take a UTurn in criticism by reinforcing NATO's role and America's role in it. 

The truth is the G20 has an appeal for America's Trump's realist stance, proving Ikenberry's theory that multilateralism and the values from a liberal institutionalism have moved far beyond America's capabilities to shut them down (if there ever was an attempt in doing do), and can be used by liberal institutionalists, disruptive leaders, and nationalistic leaders. The G20 summit is proof of that. The illiberal forces still take recourse to multilateralism.  

So, yes, leaders do matter.  

This prompts to answer the second question.

2.  How illiberal is the Liberal World Order? 

The rules-based order led by America since 1945 has provided common goods,  such as the body of international law, a boost in capitalist democracies and an increase in GDP.  The problem was distribution and the income- and skills gaps.  The economic and financial crises have caused the unpopularity of austerity measures like the ones seen in EU as of 2009 and the emergence of populism.

According to Ikenberry,  the world is experiencing a crisis of liberal democracy, but the author's half-full glass suggests Democracy's slow process in history (3 waves) is resilient and has the capacity to reinvent itself and learn from the erosion of political parties, elites capturing international capitalism, with America less willing to play a hegemonic role and difficulties in dealing with interdependence (terrorism, pandemics, financial crisis).  Furthermore, according to data, Ikenberry, points to the fact that the Democratic share of Global GDP is 80% higher than any other measure of national power.  

Joseph Nye underscores Trump is a gift for Europe.  His decision to leave the Paris Accord, to cut funds to the United Nations, his open enthusiasm for Brexit, provides the opportunity for Europe to reinforce their values. The Franco-German engine is an example of the invigoration to sustain the EU in the longer term.  

According to Stephen Walt, Trump's foreign policy seems a "bumpy ride to an unknown destination" because a grand strategy would imply fully undertaking actions to counterbalance China's rise but Trump's foreign policy nonetheless seems to be "erratically unraveling the world order".

Richard Haass suggests that "this world in disarray" can be explained as a backlash against the inabilities of global institutions to reform and adapt to challenges such as a "rise in nationalism, refugee flows, inequalities, loss of jobs and the falling off of upward mobility"

Some Conclusions:  the liberal world order, once championed by America is witness to America's retreat from her hegemonic role.  Despite China's deficit in democracy, this is not an impediment for Xi to express his will to fill in the vacuum, to uphold commerce and globalization, to step in and lure ex-TPP countries.  It is not an impediment for ex TPP countries  - as well  - to resuscitate the mega-treaty by themselves.  Rather, it presents itself as an incentive for the EU to carry out much-needed reforms on the euro zone.  It is an opportunity for France and Germany to ally and uphold the liberal values.  

Domestically, according to Ian Bremer,  Trump's decisions have tested the resilience of strong institutions in America.  America is still a "strong Liberal Democracy but dysfunctional" according to the expert.


Soledad Soza, July 13, 2017