Op-Ed: G-20 is a sideshow — world peace and prosperity hinge on G-3

• Failure to coordinate economic policies is a serious problem

• The U.S. is missing a chance to reduce a drag on its GDP growth

• The G-3 will talk on the sidelines about war and peace issues

Carlos Barria | Reuters

President Donald Trump (L) and China's President Xi Jinping walk along the front patio of the Mar-a-Lago estate after a bilateral meeting in Palm Beach, Florida, April 7, 2017.

Will the G-20 — the world's key economic and financial forum — establish the international economic policy coordination during its next summit in Hamburg, Germany on July 7 to 8 to support faster growth of the global economy by reducing stifling trade imbalances?

Will the G-20 make any progress toward solving the problems of bloodshed, misery and insecurity in the Middle East, North and Central Africa, East and Central Europe, the Korean Peninsula and the rest of East Asia?

The answer to both questions is no. Germany — the host country presiding over the summit's proceedings — is too busy fretting about America's exit from the agreement on climate change, the new administration's alleged trade protectionism and its increasingly strict homeland security policies affecting travel, migration and immigration issues.

Instead of carping on problems that have been discussed ad nauseam in other talking forums, Germany should have concentrated on the G-20's essential mission to promote world economic growth and financial stability. An appropriate starting point would have been to suggest that the euro area, with a trade surplus of $385 billion (where Germany accounts for $272 billion), an unemployment rate of 9.3 percent, tepid GDP growth of 1.9 percent and an inflation rate of 1.4 percent should lead the world economy to higher jobs and incomes with expansionary economic policies.

The same policy posture should have been advocated for East Asia, where a $643 billion trade surplus indicates a great potential for stronger domestic demand and growing purchases from the rest of the world.

America taken for a ride

What we have here is that some wealthy countries are getting richer on the back of the rest of the world — with a huge annual trade surplus of $1.03 trillion. And here is the ultimate irony: These surplus countries are ignoring their obligations under the rules of the international trade adjustment while accusing the U.S. of trade protectionism.

Some chutzpah, isn't it?

But all that is Washington's fault. Had the White House insisted that the G-20 focus on the key objective of stronger and (trade) balanced world economy, the U.S. could have reduced its trade deficit — running at an annual rate of $730 billion in the first four months of this year — and drawn more growth and tax income from international trade. That would have helped to avoid a politically suicidal $250 billion in spending cuts on Medicaid and food stamps (healthcare and food assistance programs).

Even people sympathetic to the administration are voicing concerns that principles of equity and social justice are not being served by hitting the poor while slashing taxes for corporations and the middle class. That is an ominous development in the run-up to next year's Congressional elections that could seal the fate of the presidency and a Republican control of the legislative authority.

As things now stand, the next G-20 summit is a gigantic waste of taxpayers' money and a big yawn for world's financial markets. Sadly, it is also Washington's wasted opportunity to turn the tables on trade freeloaders masquerading as free traders.

What is left are the possibilities of separate, bilateral meetings of American, Chinese and Russian leaders to talk peace and security on the (expensive) sidelines of the Hamburg jamboree.

Here are some of the issues these three countries will have to discuss.

Solve problems, stop deadly turf games

Starting with Europe, the U.S. and Russia will have to decide what to do about the long-standing problems of the continent's security architecture, unresolved since the end of WWII, and reappearing in an acute form on the global agenda as people realized that Russia did not wither away after a debilitating agony during its horrendous decade of the 1990s.

The good people of Ukraine are dying every day of bullets, hunger and destitution, while the Minsk peace process lies dead in the water.

Ukraine is the most prominent case of chaos, waste and unbearable human suffering in the middle of Europe, but several regions in the Balkans are also a slow-burning fuse where killings, ethnic strife and intractable security issues have to be dealt with, while Washington and Moscow trade accusations of sowing mayhem.

And then there are the EU's north-south problems. Polish and Baltic fears of Russian invasion are dismissed by South Europeans as grotesque exaggerations at the time when Italians and Greeks keep desperately calling for help in dealing with thousands of people arriving — and perishing — daily on makeshift boats from North Africa and the Middle East, seeking escape from death, hunger and deprivation.

Europe's former colonial powers, and the EU, have failed to help establish some degree of security, good governance and economic development to prevent Africa's massive exodus that Europe cannot, or will not, handle.

China has a large and increasing economic presence in Africa and in the Middle East. It, therefore, must play a role — together with the U.S. and Russia — in setting up a credible framework for peace and economic progress in these troubled regions. Beijing's "Belt and Road" initiative can be one of the vehicles to promote trade and infrastructure investments in the Middle East and North Africa, but that can only happen if the U.S. and Russia could agree on the future of war-torn Syria and Libya, and on the way to manage an increasingly dangerous Iranian-Saudi confrontation.

And nothing can be done without an American-Chinese agreement about the Korean Peninsula, contested territorial claims in the South and East China Seas, and the freedom of navigation and commerce along the world's busiest sea and air routes in the Asia Pacific.

Speaking at the White House Rose Garden last Friday, President Donald Trump said that the "strategic patience with the North Korean regime has failed." China says it has done all it could for now, and Russia is stepping forward with its own plan for Pyongyang to stop missile and nuclear tests, and to get rid of nuclear weapons it already has. South Koreans are ready to talk, too. A recent opinion poll shows that 76.9 percent of South Koreans support the resumption of the inter-Korean dialog about peace and nuclear disarmament.

Diplomacy is urged because it is not clear whether reasonable military solutions exist to security problems posed by the nuclear-armed North Korea. Negotiated solutions are also seen as the only way to resolve problems of rival claims on China's maritime borders.

Investment thoughts

Rehashing problems about climate change, free trade and migration policies — amply discussed in other multilateral talking forums — the next G-20 meeting is missing a chance to address the crucially important issue of the economic policy coordination to strengthen and accelerate the global business cycle by reducing destabilizing trade imbalances. The meeting, therefore, is of no particular interest to world asset markets.

The G-3 will discuss on the sidelines of the Hamburg meeting the ways of (a) stopping the bloodshed in Ukraine, Middle East and North and Central Africa, (b) resolving the nuclear standoff on the Korean Peninsula and (c) reconciling contested territorial claims in the South and East China Seas.

But the cause of peace will only be properly served when the nuclear armed G-3 finally acknowledges there are no military solutions to their rivalries. At some point they will do that. It will take an act of enlightened statesmanship to change behaviors, and to have that explained to their respective constituencies.

Meanwhile, investors have only two lodestars: The Federal Reserve and the European Central Bank. Those two central banks know what has to be done to keep the world economy afloat. It is a great pity that the G-20 governments are failing to use that monetary platform to build a more balanced global economic system through appropriately coordinated fiscal, structural and trade policies.

Commentary by Michael Ivanovitch.

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