Donald Trump has right idea, wrong country
Donald Trump’s idea to embrace Russia is just silly. If the G-7 wants to get real, it could send Italy and Canada packing and welcome India, along with China
Donald Trump is absolutely right that the Group of Seven, or G-7, needs to reinvigorate its ranks by welcoming another member. Yet the US president is wrong about nominating Russia, when it should be China.
Sorry Italy—or perhaps Canada—but it’s high time the ultimate members-only club broke out of its cocoon of nostalgia and voted someone out.
No disrespect to Rome or Canberra, but China’s scale, trajectory and ability to disrupt today’s every challenge risks nudging the G-7 toward irrelevance.
There’s been a Group of Eight before. G-7 bigwigs didn’t pull Russia into the fold back in 1998 because of its economic brawn.
Moscow was simply too nuclear to fail. Russia under Vladimir Putin later got bounced for its annexation of Crimea.
It’s unclear whether the ahistorical man in the White House knows any of this background. And after Trump’s tantrum in Quebec City, where he refused to endorse the G-7 communique, Japan, Germany, the UK, France, Italy and Canada may be tempted to expel America.
Yet China’s massive influence can no longer be compartmentalized.
China is the world’s biggest trading nation, the largest holder of currency reserves, the top polluter and an increasingly dominant geopolitical power that’s quickly becoming the developing world’s banker.
No significant problem, or solution, can be addressed without President Xi Jinping’s input.
Until now, the argument for sticking with the same G-7 line-up since 1976 is that China isn’t a market economy.
For all Xi’s efforts to open the economy, liberalize the capital account and morph the yuan into a top-five currency, China has grown opaquer since 2012.
Xi’s assault on the media and transparency turned China into more of a black box than during the days of predecessor Hu Jintao.
That’s moot now that Trump is transforming America into the kind of predatory trader Washington long despised.
An argument can be made that China is doing more to protect unfettered commerce than Trump. As such, the rationale for keeping Beijing at bay is falling away.
The only real way to gain intelligence on what’s afoot in the most populous nation and influence its policies is from the inside.
China jealously guards its internal affairs. Pulling Beijing into the G-7 would prod it to act more like a stakeholder in global stability than just shareholder.
Xi’s China likes the benefits of rising clout, not the responsibilities that come with it. That must change.
Granted, the Group of 20 is a more representative and diversified animal. That grouping, which of course includes India, has proven to be unwieldy and unfocused since its inception in 1999. For better or worse, the core G-7 nations have better results swaying currency markets, treating imbalances and imposing sanctions from Russia to North Korea. One benefit of having China at the table is discerning the true state of play in what’s destined to become the biggest economy.
Among the most contentious debates in economics: whether or not China is careening toward a devastating “Minsky moment”, when a debt-fueled expansion ends badly. Every industrializing nation does at some point. And it’s troubling that China’s debt-to-gross-domestic-product ratio is 260% long before it reaches middle-income status.
Thanks to Xi’s black box, world markets won’t know China is unraveling until it’s too late. Bond guru Bill Gross captured it best when he called China Inc. “mystery meat”.
The mystery deepens as the dominant role of the state warps bond yield levels, credit spreads and ratings.
If Chinese assets do crater, the typical warning signs that tip off investors won’t be there.
As International Monetary Fund, or IMF, head Christine Lagarde puts it, China has “communication issues, which is something markets don’t like.”
Trump’s idea to embrace Russia is just silly. If the G-7 wants to get real, it could send Italy and Canada packing and welcome India, along with China. India, by some measures, is already the seventh biggest economy.
Giving Prime Minister Narendra Modi a seat, too, would buttress the G-7’s potency.
India suffers from its own perception problems that it hasn’t created enough of a market economy for comfort.
Perhaps, but as Trump drags America back to developing nation status, arguments against pulling Beijing—and perhaps New Delhi—into the fold lack seriousness.
William Pesek, based in Tokyo, is a former columnist for Barron’s and Bloomberg and author of Japanization: What the World Can Learn from Japan’s Lost Decades.
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