The failure of the Group of 20 finance ministers and central bank chiefs to spell out effective steps to combat protectionism during their meeting in Buenos Aires last weekend highlighted the limitations of the G20 as a multinational forum to tackle common threats to the global economy. The G20 — comprising major advanced economies along with emerging powers like China — came to the fore as such a venue when the 2008 collapse of Lehman Brothers in the United States triggered a global recession. Its function to guide a way out of international economic problems through policy coordination by the major economies, however, has been crippled since the launch of the U.S. administration of President Donald Trump, which would not hesitate to put America’s own interests over common international concerns.
Japan, which will serve as the G20 chair in 2019, needs to work persistently with other economies to try to persuade the U.S. to rethink of its protectionist policies that pose an increasingly serious threat to global growth. While pursuing its own agenda to beef up multilateral free trade schemes, Tokyo should keep sending the message that protectionism will not benefit anybody and will cause damage to all, including the U.S.
The two-day G20 meeting in Buenos Aires was the first such gathering since the U.S. and China — the world’s two largest economies — imposed punitive tariffs against each other in early July, heightening global concern over an expanding tit-for-tat trade war. The G20 finance ministers and central bankers released a joint statement noting that intensifying trade friction poses an increased downside risk to global growth and calling for greater dialogue and action to alleviate the risk.
During the conference, almost all participants expressed concern over the protectionist trade policies of the Trump administration. But the G20 statement fell short of calling for any concrete measure to fight the protectionism. The U.S. government does not appear ready for any serious dialogue to address the situation, with Treasury Secretary Steven Mnuchin telling reporters that claims Washington has adopted protectionist policies are baseless.
With its “America First” slogan, the Trump administration has demonized the U.S. trade deficit as a symbol of American jobs lost to what it deems are unfair practices by its trading partners — and has sought to cut the deficit by raising tariffs on imports to America. Starting with its hefty tariffs on steel and aluminum imports, the administration imposed punitive measures on China for alleged intellectual property violations, which led Beijing to take retaliatory steps. It is also weighing import curbs on automobiles and auto parts on the grounds that they pose a “national security threat” under its trade act — and Trump is expected to make a decision once the ongoing Commerce Department probe wraps up as early as the end of this month.
The Trump administration does not appear willing to listen to international and domestic criticism of such policies, particularly as it braces for midterm elections in November. The risk of trade friction being further exacerbated — and causing serious damage to the global economy — cannot be discounted. In a recent estimate, the International Monetary Fund warned that the world economy could shrink by 0.5 percent and lose some $430 billion, or ¥49 trillion, in a worst-case scenario. Given its substantial car exports to the U.S., Japan’s GDP could fall by 0.6 percent — while the U.S. economy itself might suffer a 0.8 percent fall. It’s clear that nobody will emerge a winner in this trade war.
When the world economy was thrown into turmoil by the Lehman shock of 2008, it was agreed at the G20 leaders summit that the major economies must take coordinated action to tackle the crisis, setting the stage for a subsequent recovery. A decade on, the U.S. administration’s unilateral actions to prioritize what it views as key American interests is hampering international efforts at such venues as the G20 and the Group of Seven to address global problems.
Japan, which took a leadership role in bringing the Trans-Pacific Partnership back to life after Trump pulled the U.S. out of the 12-member free trade pact and has recently signed an economic partnership agreement with the European Union, is in a good position to try to bring the U.S. back to the multinational free trade regime by emphasizing the benefits of free trade over protectionist policies.
As chair of the G20 next year, Japan will host a meeting of the group’s finance minister and central bank chiefs in Osaka next June. It should also work together with other key economies to rebuild an international regime that is capable of taking coordinated action to address common threats to global growth.