G-20 talks drag as US runs into resistance on trade language

 19 Mar 2017 - 0:07

G-20 talks drag as US runs into resistance on trade language
The President of the European Central Bank (ECB) Mario Draghi walks together with US Treasury Secretary Steven Mnuchin (left) during the G20 Finance Ministers and Central Bank Governors Meeting in Baden-Baden, Germany.

By Jeff Black, Toru Fujioka and Weixin Zha / Bloomberg

Group of 20 finance chiefs remained at odds as they met in Germany, with China leading a defense of the existing rules-based system and the US calling for a recognition that trade must be fair.
Chinese Finance Minister Xiao Jie said in a statement on Saturday that the G-20 should be “adamantly against” protectionism. That reflects talks in Baden-Baden that started Friday over a planned communique by the world’s biggest economies, where officials with knowledge of the matter say China has been the most insistent on a commitment to the current system that the World Trade Organization represents.
Negotiations were bogged down on Saturday with the US rejecting the latest German compromise on wording over trade, according to people familiar with the matter, asking not to be identified as the talks are private. An earlier German suggestion that accommodated some US concerns was rejected by delegations including France, the UK, Italy, Brazil and the European Union.
The standoff is over how to deal with trade pledges from previous G-20 meetings, such as a commitment to “resist all forms of protectionism,” people familiar with the negotiations said.
Readings so far suggest that the US delegation under Treasury Secretary Steven Mnuchin is engaged in the process, despite being sent by a young administration that has criticized multilateralism and which is still building its policy agenda. Even so, the impasse reflects the atmosphere the previous day at the White House, where US President Donald Trump met German Chancellor Angela Merkel and repeated his complaints that his country has been treated “very, very unfairly” in trade arrangements. “It’s an administration, the fruit of American democracy, that needs to be respected, but also with a lot of resolve on the French position, which is shared by a lot, if not to say all the members of the G-20 except for this country,” French Finance Minister Michel Sapin told reporters on Friday. “We don’t want a rollback on what was said before by the G-20.”
If Trump sees Germany -- which has a $68bn trade surplus with the US -- as having gotten the better of trading arrangements, China falls into the same category. Its newly found stance as the prime defender of the status quo reflects its economic gains under the rules-based system since it joined the WTO in 2001.
US officials have criticized that setup, with the director of the National Trade Council, Peter Navarro, saying China’s accession was to blame for much of a 15-year American slowdown.
“China has been able to do well based on the multilateral system; it has been able to leverage the gray areas,” said Dominico Lombardi, director of global economy at the Centre for International Governance Innovation in Waterloo, Ontario. “The Trump administration is for a level trading field. In the case of China, there are complaints of subsidies so ‘fair’ trade is what Washington wants to push for.”
Mnuchin and Xiao held a bilateral meeting in Baden-Baden on Saturday, a G-20 official said.
While Trump started his presidency by shooting down regional trade deals and floating measures such as a border tax, his Chinese counterpart Xi Jinping laid out his position at the World Economic Forum in Davos this year when he said protectionism was like “locking oneself in a dark room.”
That his sentiment is shared by many in Baden-Baden was shown when delegations knocked back a proposal by Germany, which holds the rotating G-20 presidency this year, to compromise by referring to “fairness, openness and inclusiveness” in trade.
“We’ve been having these G-20 summits for quite some time and there is an appropriate wording there” on trade, Turkish Deputy Prime Minister Mehmet Simsek said in Bloomberg Television interview on Saturday. “Openness to trade is key. There is no evidence that trade is destroying jobs.”
Germany’s intent was to accommodate some US concerns to keep it involved in the multilateral process, rather than to isolate and antagonize the delegation, giving the Trump administration an excuse to turn its back, people familiar with the matter said.
“It’s about the right way to formulate the openness of world trade in the communique,” German Finance Minister Wolfgang Schaeuble said at a briefing with reporters on Friday. “There are some sensitivities here.”
For his part, Mnuchin stressed that trade is only fair if it’s balanced, and although he argued that the US is unfairly treated, he didn’t elaborate on what that meant in detail, according to a G-20 official familiar with the discussions.
Finance ministers and central bankers aren’t usually the key officials for trade talks, but their statements normally reflect a consensus. This time, if they can’t agree, the topic could be pushed to a leaders’ summit in July, Sapin said.
That could play in China’s favour. In a phone call on Thursday, German Chancellor Angela Merkel and Xi reaffirmed their common support for free trade and open markets.