Von because of loose holiday island. Even before the news of the rocket hit on Polish territory, it was a busy and very serious meeting, which brought together the heads of state and government from the group of twenty large economic areas and their guests in Bali. Nobody should be deceived by the staged pictures from Indonesia, which show the powerful of the world relaxed and casual.
At the G-20 summit, as the gathering is known for short, the stakes were high from the start. Rarely has there been such a thick tangle of problems. First the pandemic, which paralyzed companies and disrupted supply chains, then the Russian invasion of Ukraine with all its ramifications: food is scarce, the number of starving people in the world is increasing.
At the same time, energy is more expensive than ever, and companies and consumers are suffering massively. Currency devaluation is skyrocketing everywhere to levels not seen for a long time, the central banks in the industrialized countries feel compelled to raise key interest rates quickly in order not to let inflation expectations get out of hand. This not only affects the economy in the rich countries. Many poor countries are at risk of financial collapse as a result.
As if all that wasn’t enough, China’s strongman Xi Jinping, with sharp rhetoric and military muscle flexing, has sparked widespread concerns in the South China Sea and the Taiwan Strait that another major conflict is about to break out in the Far East – with even more sanctions and supply disruptions up to and including Decoupling his entire country from large parts of the world economy – with serious consequences, since many companies are dependent on the huge market.
The horror scenario has become a little less likely
The horror scenario is a division of the global economy into two blocs that are antagonistic to each other. The probability that it will come to that is at least slightly lower after the summit than before. A lot has contributed to this: the prior meeting between America’s President Joe Biden and his Chinese opponent, the visit of Federal Chancellor Olaf Scholz to Beijing, possibly also the early inclusion of the emerging countries in the group of seven western industrialized countries.
China was incorporated into Bali, Russia isolated. But free world trade is far from out of danger. No one knows how long calm will last in China. The lesson from history is clear: no market, no supplier of raw materials, no foreign product should be so dominant that one could be blackmailed. First of all, this is a message to the companies themselves. Their owners and managers must see how they can break out of the fatal dependencies. That doesn’t mean that they have to say goodbye to the Chinese market with its fat yield opportunities, but they have to position themselves in such a way that they can handle the collapse of this market.
Will Germany offer higher subsidies?
The governments in America and Europe are already reacting to the global economic turning point. In Washington and Berlin, it is important that key products are increasingly manufactured within their own borders. For example, it is about the super small circuits without which no technical product can do, about the battery factories for the electric cars of tomorrow. Biden lures investors to America with 430 billion euros. Even if the “Inflation Reduction Act” runs for ten years, that remains a dazzling sum.
From the point of view of the federal government, which has to fear for settlements in Germany, this is an unfriendly act among friends. In response, will it offer higher subsidies itself? The companies that would otherwise have to finance the relocation of production to safer locations are the winners of such a subsidy race, while the taxpayers lose. You are taking a new risk.
Free trade is the engine of growth, development, prosperity in the world. The multilateral rules, the principle of “equal market access for all” and control by the World Trade Organization have long suffered. More and more bilateral free trade agreements are taking their place. That’s better than nothing, but worse than a global system that includes everyone.
So much can be said at the end of the two days in Bali: The free world economy has not lost completely – but real progress looks different. Unfortunately, from a realistic point of view, given the general political climate, it was hardly possible.