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U.S. Trade Policy Draws Pushback At G-20 Meeting -- WSJ

18 Mar 2017 6:32 am
By Andrea Thomas, Ian Talley and Tom Fairless 

BADEN-BADEN, Germany -- World finance chiefs clashed Friday over the future of global trade, worried that protectionist tendencies could tilt the global economy back into the doldrums and stir up cross-border tensions.

The confrontation at a two-day meeting of finance ministers of the Group of 20 economies pitted the U.S., which is seeking to rectify what it says is an off-kilter global trading system, against a bloc of advanced and emerging market countries attempting to head off what they see as President Donald Trump's protectionist agenda.

The wrangling came as Mr. Trump and German Chancellor Angela Merkel met in Washington. Highlighting their different philosophies on trade, Mr. Trump told reporters "I'm a free trader, but I'm also a fair trader," while Ms. Merkel said open trade must be a win-win proposition for Germany and the U.S.

Speaking at the start of the meeting in the ritzy spa town of Baden-Baden, German Finance Minister Wolfgang Schäuble said "we are still in the process of finding a solution for the obvious and known different views."

In dispute is the wording of a joint statement that the finance ministers are scheduled to adopt on Saturday and is meant to define the nature of their trade relationships. While the so-called communiqué is a symbolic, nonbinding act, it has come to embody the balance of power in the global tug of war over economic policy. Delegations have argued fiercely over the carefully calibrated text in the past, but trade has rarely been a focus of those debates.

Europe, China and Brazil want the G-20 to preserve current language calling for a rejection of protectionism "in all its forms." They see that formulation as a way to hem in the economic nationalism advocated by Mr. Trump's "America First" platform. The U.S., by contrast, argues that other markets are more protected than America's and says it wants reciprocal treatment -- or fair trade.

One G-20 delegate said member countries presented a united front against the U.S. position, with nearly all the other parties opposing a change to the existing language.

"With respect to trade, we support fair trade," U.S. Treasury Secretary Steven Mnuchin told the G-20. "We will examine existing protectionism in foreign markets very closely, including examination of where our trading partners have failed to fully live up to their commitments," he said. "The administration is going to combat unfair trade practices."

German officials presiding over the talks initially proposed a phrase pledging to adhere to "rules-based" trade, negotiators said -- terminology that reflects the unease of many attendees at the talks about the Trump administration's threats to unilaterally sanction trade partners and its challenges to the World Trade Organization.

They fear the U.S. may not only spark a trade war but could also upend the post-World War II rules-based order championed by America for seven decades.

Mr. Mnuchin, representing the Trump administration at his first G-20 meeting, said the administration wants to avoid trade wars too, But Washington also seeks to rebalance cross-border flows of goods, services and capital.

In bilateral meetings with counterparts on the sidelines of the meeting, the Treasury secretary also tried to reassure ministers the Trump administration plans to work within multilateral institutions such as the G-20 and the International Monetary Fund.

Despite Mr. Mnuchin's efforts to allay their worries, many officials expressed apprehension about the direction the White House would ultimately take. The administration is still just two months into office, many key policy-shapers have yet to be approved and many agencies are depending on bureaucratic staff to tide them over. Competing power centers within the administration are fueling confusion about White House policy.

Japan, a longtime ally of Washington whose trade ties with China have grown exponentially, was a rare delegate to back the U.S. position. Tokyo supported wording that would match an agreement reached in February by Mr. Trump and Japanese Prime Minister Shinzo Abe to promote trade that was "free, fair and reciprocal."

Still, Japanese officials are also worried that a trade war could slash growth in its two largest markets, the U.S. and China.

"I told him that it is necessary to fight back against protectionism" because free trade has many benefits, Japanese Finance Minister Taro Aso said after meeting face-to-face for the first time with Mr. Mnuchin.

Several officials said China's new finance minister, Xiao Jie, was particularly adamant about preserving the trade language agreed last year under the Chinese chairmanship of the G-20. Governing the world's No.2 economy has given Beijing confidence to challenge the U.S. on the global stage, and some economists warn Mr. Trump's economic platform risks ceding influence to the Asian power.

Berlin tried to craft a compromise that assured members would conduct trade that creates "prosperity, fairness, openness and inclusiveness." But it wasn't known whether that language had gained traction with other parties at the talks. Some officials said they wouldn't rule out a postponement of an agreement on trade language until G-20 leaders meet in July.

The Trump administration argues that the trade surpluses maintained by China, Germany, South Korea and other countries represent an unfair trading system that isn't adequately monitored by the WTO or the IMF.

Washington also believes China doesn't maintain fair trade relationships, subsidizing its industries, restricting access to foreign investment and managing its exchange rate in a way that boosts domestic growth at the expense of U.S. companies and workers.

Some attendees at the gathering said Friday that U.S. concerns about global trade imbalances are misguided.

Ángel Gurria, secretary-general of the Organization for Economic Cooperation and Development, said America was a great beneficiary of the current global trade system and that the nation's giant trade deficit reflects its economic vibrancy.

Global value chains mostly "benefit the United States because that's where the intellectual property lies," Mr. Gurria said in an interview.

Criticism of Germany for its large trade surpluses is "like raising your voice and saying, 'Why are you so virtuous?'" Mr. Gurria said. "Can you take virtue to become a fault?"

He warned that the introduction of a border-adjusted tax on imports into the U.S. could be very disruptive and spark tit-for-tat actions by other nations.

One potential sore spot on exchange rate policies was allayed after officials drafting the communiqué preserved previous commitments, a G-20 official said.

The G-20 vowed last year to refrain from devaluing their currencies to gain a competitive advantage and pledged to consult closely on exchange rate policies. It acknowledged that volatility in exchange rate markets risks financial instability, giving leeway to countries such as Japan that occasionally intervene in foreign exchange markets when investors cause rapid changes in currency values.

Todd Buell and Takashi Nakamichi contributed to this article.

Write to Andrea Thomas at andrea.thomas@wsj.com, Ian Talley at ian.talley@wsj.com and Tom Fairless at tom.fairless@wsj.com
 

(END) Dow Jones Newswires

March 18, 2017 02:32 ET (06:32 GMT)

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