Tensions belie talk of global harmony

This is my comment from this week’s Fund Strategy.

Last week’s Comment drew attention to the growing tensions between the world’s main economic powers. Within a few days things were unravelling even faster than expected at the G20 summit in Pittsburgh.

Certainly the rhetoric was one of peace and harmony. In his address to the United Nations the American president had argued: “It is my deeply held belief that in the year 2009 – more than at any point in human history – the interests of nations and peoples are shared.” But this was the same speech in which Barack Obama called for free trade shortly after imposing tariffs on Chinese tyre imports.

The problem is, contrary to Obama’s argument, the interests of nations are becoming increasingly antagonistic.

Established powers fear losing out to rising powers and tensions are rising within the West itself.

America is desperately trying to shore up its dwindling power by building closer ties with the rising emerging nations. That is why it supports the replacement of the G8 with a permanent G20 framework.

However, if countries such as China and India are given more power it is likely that Britain and France will lose out. Both European powers are in danger of losing their permanent seats on the International Monetary Fund board if American proposals are accepted. Yet America is not prepared to give up its effective veto on the organisation’s affairs.

Then there is the tension over global imbalances. This pits America and Britain against China and Germany. America is keen that the two exporting powers bolster domestic demand to help bring the global economy closer to equilibrium. But for China and Germany exports are a key element of national wealth.

There are disagreements over financial regulation too. Notably, Britain will resist a tight system of global regulation because it could hit the City of London.

All these tensions lead to a complex pattern of rivalries. Countries may be prepared to make concessions in one area if others make compromises elsewhere. But the increasingly competitive character of the global economy makes it difficult to reach agreement.

National leaders may like to pretend that they are primarily motivated by universal human principles. But in reality they are simply expressing the particular interests of their national states.

If such tensions cannot be contained the consequences will be enormous.