War dominating global diplomacy

Talks between the G20 finance ministers in Brazil and the World Trade Organisation conference in Abu Dhabi have been overshadowed by war.

| 5 min read

This week saw the G20 finance ministers and central bank heads meet in Sao Paulo in Brazil. The meeting was overshadowed by arguments about the Ukraine war and what the G7 powers should do next to support Kiev. The World Trade Organisation (WTO) was also holding its 13th Ministerial Conference in Abu Dhabi.

Brazil’s leadership of the G20 is based around President Lula da Silva’s wish to do more to combat world poverty, relieve low-income countries of excessive debt and raise more tax from large companies and rich people. He wishes to give the emerging nations a greater voice in world affairs. The Brazilian president found an ally for some of this in Janet Yellen, the US Treasury Secretary. She has supported the initiative of 145 countries to enforce a minimum company tax rate worldwide. Ms Yellen now promotes foreign partnerships and more investment for poorer countries and seeks reform of the multilateral development banks to allow them to lend more money.

The most important thing Janet Yellen said was about taking action to use Russian sovereign assets that are currently immobilised by Western institutions. She commented: “I believe it is necessary and urgent for our coalition to unlock the value of these immobilised assets… I believe there is a strong international law, economic and moral case for moving forward. This would be a decisive response to Russia’s unprecedented threat to global stability. It would make clear that Russia cannot win by prolonging the war and would incentivise it to come to the table to negotiate a just peace with Ukraine.”

This fell short of saying that the West would immediately take the money and give it to Ukraine. She was concentrating on the central bank money, which she estimated at $285bn. This money is thought by some to be protected by sovereign immunity, as it is money belonging to the Russian state. The US and NATO allies are not at war with Russia, so they argue normal law applies. France for example is worried about the legal issues.

The case against Russia

Presumably some states think there is a case in law that as Russia has broken international law by invading Ukraine, it could be possible to spend the central bank money on restoring Ukraine after the Russian damage. There could be reparation payments imposed on Russia that could be settled by taking the money already held in the West. Just sending the money to Ukraine whilst the war is still on would leave open the counter that the money was being spent on weapons which other states do think is going too far. The US stresses the need to proceed together and to examine the legal case whilst being on the hawkish side.

Janet Yellen’s statement implies that US President Joe Biden would like a negotiated peace between Ukraine and Russia and would see threats to Russian sovereign wealth as part of the negotiating pressure. There remain issues of possible retaliation by Russia’s allies against Western assets in their countries, and about how third-party countries would react to seeing sovereign funds expropriated from Western banks. Autocratic regimes might decide it was no longer safe to invest in advanced country bonds and deposits and divert their wealth elsewhere.

We continue to live in a world where trade is hindered or made more costly by a rising number of frictions.

Meanwhile, the WTO has been tussling with calls for reform of its all-important disputes’ resolution procedure. The US, under President Donald Trump, found the procedure too intrusive on US sovereign decisions. Since then, the WTO has struggled to find a replacement mechanism which meets with general approval and would work. Clearly, the WTO needs to be able to investigate and adjudicate on trade disputes in ways acceptable to members, otherwise countries can unilaterally make trade changes that other members dislike without a way of resolving matters.

We continue to live in a world where trade is hindered or made more costly by a rising number of frictions. Houthi attacks in the Red Sea, low water levels in the Panama Canal, and the move to limit trade and exchange of technology between the US and Chinese blocs are all issues. The onshoring movements and the use of bans, laws and tariffs to influence trade all add to the strains.

The Russian invasion of Ukraine forced political changes in energy trade. These are then compounded by the needs of net zero policy to change the way power is generated and how energy is used in everything from cars to heating systems. We continue with the theme of deglobalisation which hurts some but provides others with opportunities.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

War dominating global diplomacy

Read this next

Your 2024 tax year checklist

See more Insights

More Insights

Hot inflation hits rate-cut hopes
By Garry White
Chief Investment Commentator
12 Apr 2024 | 11 min read
The US election will impact markets
By Charles Stanley
12 Apr 2024 | 12 min read
AIM shares: what are the benefits?
By Abi Ward
11 Apr 2024 | 6 min read
US navigates major geopolitical tensions
By Charles Stanley
11 Apr 2024 | 9 min read