FUKUOKA – With the outlook of the global economy clouded by the ongoing U.S.-China trade war, finance leaders from the Group of 20 nations kicked off a two-day meeting Saturday in Fukuoka to discuss measures to guard against economic risks.
The meeting came as U.S. President Donald Trump announced that he was calling off planned tariffs on imports from Mexico after reaching a deal on migration, a decision that was welcomed by Bank of Japan Gov. Haruhiko Kuroda.
Still, trade friction is an unpredictable factor that might drag down growth, although the global economy will likely regain momentum in the second half of the year, Kuroda told reporters.
“We will discuss the current situation of the global economy and its outlook … and what to do if something happens,” Kuroda said Saturday.
“I think (calling off the tariffs) is not only good for the United States and Mexico, but also it is positive for the global economy,” Kuroda added.
Trump planned to put a levy on Mexican goods from Monday but Mexico apparently agreed to implement “strong measures” to control the number of migrants illegally crossing the border and entering the United States.
As the chair country, Japan aims to lead discussions to explore risks for the world economy and specific programs to strengthen growth during the meeting among finance ministers and central bank governors.
Finance Minister Taro Aso told reporters after the first day’s session that recent positives have been seen with Japan and other developed countries showing steadier GDP growth than expected.
Yet, the “bad news is that it is unclear how the U.S.-China trade talks will turn out. Failing to find common ground might further damage trust from the markets,” he said.
He said he stressed the importance of structural reforms and outlined Japan’s plan to raise the consumption tax from the current 8 percent to 10 percent in October as a countermeasure against aging demographics.
During Sunday’s sessions in the city of Fukuoka, Aso is set to argue that the primary cause of global current account inequalities is an excess of savings or investments among countries, not unfair trade practices as has been vehemently argued by Trump, according to Japanese Finance Ministry officials.
In general, a higher level of savings contributes to a current account surplus, while a current account deficit is related to excessive investment.
For instance, Japan, which saw a ¥19.4 trillion current account surplus in fiscal 2018, has an excessive amount of savings coupled with a low level of investment, the opposite of the United States’ situation.
Thus, the issue of current account imbalances should be corrected through international cooperation on macroeconomic policies rather than bilateral trade deals, Finance Ministry officials have argued.
“Bringing up the issue of global current account imbalances may imply Japan is doing the United States a favor” because the Trump administration is keenly interested in trade account issues, Takahide Kiuchi, an economist at the Nomura Research Institute, said in his report released prior to the Fukuoka meeting. The current account of a country covers not only the balance of trade and services but also profits from investments.
But Japan also appears to be attempting to persuade Washington to share its view that bilateral trade wars will do little to improve the situation for the United States, he added.
“President Trump seems to believe that the U.S. trade deficit is because of unfair trade customs and competitive devaluation engaged in by trade partners” when the imbalance of savings and investment is actually a major factor, Kiuchi said.
Aso is expected to meet his U.S. counterpart, Steven Mnuchin, on the sidelines of the G20 meeting Sunday.
Media outlets have speculated that Mnuchin may argue that a provision to prevent currency manipulation should be included in a possible Japan-U.S. bilateral trade pact, but he reportedly denied during comments to reporters that he will raise the issue during his meeting with Aso.
On Saturday, the finance leaders also issued a statement recognizing the importance of universal health coverage in developing nations, saying that such a health care system fosters healthy human resources, which then serves as the foundation for a country to become prosperous.
The statement adds that it is more effective to prepare universal health coverage at the early stage of economic development to achieve “long-term sustainable and inclusive growth.” But as it is a costly system, health ministries should work closely with finance authorities, it says.
Paving the way for new tax rules designed to impose fair levies in the age of a digital economy is another item on the agenda at the Fukuoka meeting. The finance chiefs are likely to endorse draft proposals compiled by the OECD.
Focal points of the new rule will likely include the possible implementation of more flexible tax systems that won’t necessarily depend on where companies’ physical headquarters or branches are based.
Regulations for cryptocurrencies will also be discussed at the meeting.
Japan is one of the first countries to introduce legal regulations on such assets.
Kyodo News reported that G20 member countries may agree that cryptocurrency exchange operators should receive government approval before launching new businesses, which is already a requirement in Japan.
The G20 members are Argentina, Australia, Brazil, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States.