Kristian Rouz — On Friday, a meeting of G20 central bankers and finance ministers produced a surprisingly positive outcome, with governmental officials from the world's biggest economies finding common ground on trade, currency FX rates, and most prominent policy matters. The concerns that a greater degree of protectionism would prove disruptive to the existing architecture of global trade were downplayed significantly, as global leaders demonstrated their willingness to find negotiated solutions on a bilateral basis.
Ahead of the meeting with several G20 government officials, the White House announced that the new administration is ready to commit to coordinated economic policies with other major economies and abstain from an unnecessary and excessive restriction of the US' involvement in the global trade.
Commenting on the meeting itself, US Treasury Secretary Steven Mnuchin said international institutions such as the International Monetary Fund (IMF) should adhere to their regulative role on a global scale in order to prevent currency manipulations, which some nations resort to in order to gain a competitive edge in international trade. Mnuchin also said that whilst the US is intending to more coherently defend its economic interest, the new administration has no intent to conduct policies harmful to other economies.
"Almost everybody underscored the importance of open markets and free market access," Deutsch Bundesbank (German central bank) governor Jens Weidmann said after the meeting. "That was the consensus."
The overall sentiment of the meeting was much more positive than the one held in Germany just a month ago, where the US representatives left their counterparts wondering about the degree of uncertainty and unpredictability surrounding the Trump administration's approach to international trade. Last time, the G20 finance ministers excluded their traditional wording of protectionism being ‘irrelevant' from their final communique.
This time around, the consensus was that "protectionism would be damaging to the global economy and the concerned economies as well," as the German finance minister Wolfgang Schaeuble put it.
The United States "will continue to promote an expansion of trade with those partners committed to market-based competition, while more rigorously defending ourselves against unfair trade practices," Mnuchin said.
The recent rise of an anti-globalist agenda and right-wing populism in the world's biggest economies, along with Donald Trump's election for US President and the UK's separation from the EU, stained the relationships between finance ministers over the economic matters. After several episodes of currency manipulations here and there, including intentional devaluations in order to promote national exports, in the past several years, the degree of mutual trust on the international arena has decreased.
With the US administration still adamant about implementing higher customs tariffs on imports, and Britain's exit from the common European market, along with the intra-EU trade woes between Germany and France, the era of globalized multilateralism in global trade is ending. The nations will most likely have to negotiate the terms of trade on a bilateral basis, as multilateral trade deals have proven to always leave at least some members behind.
"Excessively large trade surpluses… are not conducive to supporting a free and fair trading system," Mnuchin said in a nod to Germany and mainland China, the world's two most prominent nations boasting a solid current account surplus.
The US Treasury Secretary said such nations should take on a greater responsibility to promote domestic economic growth, including through fiscal policy measures, in order to boost domestic consumption, which would help alleviate the pressure of their exporting power on the international market.
US President Trump, however, repeatedly blasted the globalist agenda of institutions such as the IMF, making it harder for Mnuchin to come to an agreement with other finance ministers. Trump's proposed fiscal stimulus package is another concern to the sustainability of the global consensus, as many other economies might have to boost their own infrastructure spending and cut taxes at home in order to maintain their investment appeal.
Yet another concern is that Trump's deregulation of the US economy, including repealing the Dodd-Frank Act, could give the US an immediate competitive edge in terms of international investment flows. The overregulated EU economies are particularly unhappy with such a development, yet, the German central bank governor Weidmann expressed hope there would be no "regulatory race to the bottom."
Still, the US trade policies and dimensions and timing of the domestic economic reform remain uncertain. Whilst the general idea is clear, as inferred from President Trump's statements, and is disturbing to some US trade partners, the practical measures are yet to be announced.
Subsequently, this fragile consensus, achieved on Friday, might clash with the harsh reality of the gaping global trade imbalances and uneven economic development across different parts of the globalized world economy.
