ROUNDTABLE DISCUSSIONS: Finance ministers and central bank governors from the Group of Seven leading industrialized countries attend a meeting in Iqaluit in northern Canada on February 6 (XINHUA)

Trade protectionism has spread from trade to other fields, such as investment, finance and environmental protection. This is underscored by the fact that the United States and the EU are considering imposing a carbon tariff on imports from countries that have not taken measures to cut their greenhouse gas emissions.

In order to achieve recovery as soon as possible, major economies will focus more on themselves. As they go out of their way to promote employment and boost industrial development at home, they tend to adopt a variety of trade restrictions and protective measures.

It is also worth noting that public support for free trade has weakened because of mounting employment pressure and escalating social problems associated with the financial crisis.

A rebound in capital flows

In the next year or two, with the recovery of the world economy and international trade, international capital flows will increasingly activate.

In fact, according to the UN Conference on Trade and Development, global foreign direct investment will hopefully slowly revert to $1.4 trillion in 2010. It will regain momentum in 2011, reaching $1.8 trillion—slightly higher than in 2008.

It is noteworthy that, with their rapid economic recovery and increased national strength, emerging economies now are not only recipients of foreign direct investment, but will soon also become major investors in their own right.

Economic restructuring

The financial crisis has resulted in several major adjustments in the global economy.

The most prominent one is that economic growth will change from government-driven to demand-driven. Following the crisis, with the weakening of government stimulus, economic recovery should be based on increases in private demand. Otherwise, the recovery will be neither stable nor sustainable.

Moreover, in the next few years, the United States will continue to adjust its growth mode by maintaining a savings rate at about 4 percent—thus reducing consumption and expanding exports.

This requires that Asian economies, including China, adopt opposite measures. They will have to reduce savings, expand imports and increase consumption. But it will be impossible for them to fill in the gap caused by shrinking consumption in the United States.

The United States will need more time to strike a balance once more. During the period, the growth rate of the U.S. economy—as well as the world economy—will be lower than it was before the financial crisis.

Meanwhile, trade frictions and exchange rate frictions will increase between the United States and Asian emerging countries including China.

Finally, the world economy is fast transforming to a low-carbon economy. Developed nations, led by the United States, have increased research and development input in alternative energy, energy conservation and environmental protection.

They also are striving to upgrade traditional industries with low-carbon technologies. The thriving of green industries will possibly lead to a new round of industrial restructuring worldwide.

In fact, all countries are faced with the challenges of climate change as well as energy and resource shortages. Developing countries, in particular, will have to bear higher costs of economic development because of energy conservation and greenhouse gas emissions reduction requirements.

G20 governance

At the Pittsburgh summit, leaders indicated that the G20 should replace the Group of Eight to become "the premier forum" for international economic cooperation.

This change has had significant implications for major developing countries. It means they can convene with industrial nations as equals to discuss global economic matters.

However, the G20 remains merely a platform for policy coordination, rather than a decision-making body. Agreements achieved under its auspices are not legally binding and lack enforcement power.

The United States and the EU, meanwhile, are unwilling to surrender their leading position when it comes to global economic affairs. If anything, it is quite likely they will join hands to safeguard their traditional advantages and interests. This is a direct challenge to the G20 mechanism.

In addition, a lot of small and medium-sized countries have found themselves left out of the mechanism. Compared with the UN, the G20 has yet to fully reflect the voices and concerns of the world at large.

As to whether the G20's policy coordination should be extended from the economic field to political and security fields, there remain considerable differences between the United States and emerging powers. Washington advocates expansion, while the latter continues to insist that that degree be limited to the realm of economic and financial areas.

The author is a research fellow with the China Institute of International Studies