G20 faces test amid U.S.-China trade war and market turmoil

Kyodo

Finance leaders from the Group of 20 major economies on Friday explored ways to protect the global economy from rising trade tensions but were unable to agree on concrete solutions, leaving the issue to be resolved by leaders at summit talks next month.

Central bank governors and finance ministers wrapped up a two-day conference in Bali, Indonesia, as the world stock markets reeled from a sell-off triggered by concerns that interest rate hikes in the United States could drain capital from emerging markets.

Argentine Treasury Minister Nicolas Dujovne, whose country is chairing this year’s G20, told a news conference after the meeting that member countries agreed that trade is “an important engine of growth,” and that they recognized the need “to resolve tensions which can negatively affect market sentiment and increase financial volatility.”

But Dujovne also conceded that the G20 had its limits, suggesting a heated trade dispute between the United States and China could only be resolved bilaterally.

“The G20 provides a mechanism to seek consensus and strive collectively toward our shared goals, but even having these governance groups working, we know that there are trade tensions,” he said.

“Part of those tensions, we have to resolve by members. The G20 can play a role in providing the ground for discussion, but of course the difference that still persists should be resolved by the members that are directly involved in the tensions,” he added.

U.S. President Donald Trump and Chinese President Xi Jinping are reportedly planning to meet on the sidelines of the summit in Buenos Aires, where the focus will be on whether they will agree to de-escalate the heightened trade tensions between the world’s two largest economies.

Trump’s mission to resolve the hefty U.S. trade deficit has seen Washington raise tariffs on nearly half of the products America imports from China and threaten to do the same for the remainder. Beijing has answered with tariffs of its own, raising concerns that the tit-for-tat blows could hurt the global supply chain.

In a sign that such concerns are beginning to materialize, the International Monetary Fund earlier this week cut its forecasts for global growth in 2018 and 2019.

Christine Lagarde, head of the IMF, warned that the world economy would be hit hard by a further escalation in trade tensions and that the impact would be felt across the global supply chain.

“Our strong recommendation is to de-escalate those tensions, and work toward a global trade system that is stronger, that is fair, and that is fit for growth,” she said at a news briefing ahead of the G20 conference.

U.S. President Donald Trump’s pursuit of protectionist policies in an effort to resolve his country’s hefty trade deficit has also roiled countries like Japan, which would be hit hard by automobile tariffs under consideration by Washington.

“Inward-looking policies that utilize protectionist measures are of benefit to no country,” Finance Minister Taro Aso told his G20 peers in the first day of the two-day conference.

Another major concern discussed at the meeting in Bali’s Nusa Dua resort is the vulnerability of emerging markets to an outflow of capital triggered by the raising of interest rates by the U.S Federal Reserve.

The currencies of countries like Argentina, Turkey and South Africa have sharply depreciated amid the central bank’s normalization of monetary policy following years of keeping borrowing costs near zero.