For all the talk of consensus among the Group of 20 major economies, the differences among the countries are hard to miss. While there is agreement that economic headwinds are growing stronger and that existing trade rules need to be modernized, there remains a yawning gap on how to achieve those objectives. The majority view is that multilateral frameworks are the appropriate mechanism for reform, but it is not unanimous, and the main holdout, the United States, has the ability to not only block such efforts, but it can do considerable damage to the existing international trade architecture. Japan, chair of the G20 this year, must find common ground between the U.S. and the other members when it hosts the leaders meeting this month.
The joint communique issued at the end of the meeting of finance ministers and central bank heads, held over the weekend in Fukuoka, warned that growth “remains low and risks remain tilted to the downside” and that risks from geopolitical tensions were “intensifying.” While the statement merely noted the importance of trade, Christine Lagarde, managing director of the International Monetary Fund, was more blunt, noting that “the principal threat stems from continuing trade tensions,” and warning that IMF estimates indicate that the U.S.-China trade war could reduce global GDP by 0.5 percent in 2020, about $455 billion. She urged Washington and Beijing to resolve their current problems, eliminate existing tariffs and avoid new ones, and then join the rest of the world to fix the international trade system.
There is little chance of that now. Both sides in that standoff are digging in. U.S. Treasury Secretary Steven Mnuchin denies that the trade fight had hurt U.S. growth and promises that Washington would help consumers and producers impacted by the dispute, while the Chinese leadership is girding for another “Long March,” rallying its public around a fight that it claims will determine the fate of the nation. Much appears to ride on the meeting between U.S. President Donald Trump and Chinese President Xi Jinping that is supposed to take place on the sidelines of the G20 summit in Osaka.
A forecast that growth will stabilize and accelerate later this year and in 2020 may be inuring G20 member governments; their statement noted that they “stand ready to take further action” and pledged “to use all policy tools to achieve strong, sustainable, balanced and inclusive growth, and safeguard against downside risks.” That is an anodyne response; no one would expect less.
The question is how hard will they work to fix a multilateral trade system that is under sustained assault. U.S. unilateralism reflects the belief that international forums such as the World Trade Organization cannot reform to address 21st century realities. Finance Minister Taro Aso, chair of the meeting, argued that member economies better understand that trade imbalances cannot be resolved through bilateral negotiation, and that multilateral talks are the answer. That seems excessively optimistic, given Trump’s belief that tariffs are his best tool to motivate trade partners to compromise. In fact, it has been reported that the U.S. objected to the inclusion of a clause that would “recognize the pressing need to resolve trade tensions.”
That tension was evident in the statement released after the meeting of trade and digital economy ministers held over the weekend in Tsukuba, Ibaraki Prefecture, which merely called on member economies to “handle trade tensions and to foster mutually beneficial trade relations.” The statement noted that they “strive to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, to keep our markets open.” Notably absent from the document is mention of the world “protectionism.”
Two other topics did garner a consensus in the two meetings. The first is taxation of digital business, an issue of growing concern as such businesses grow in size and scope. There is no agreement yet on what to do, but the finance officials did agree that the G20 and the Organization of Economic Cooperation and Development would work together to design common rules to close tax loopholes for global technology companies by 2020.
A second area of agreement concerned financing of infrastructure projects in developing countries. The finance ministers’ communique highlighted the importance of “quality infrastructure” and endorsed “G20 Principles for Quality Infrastructure Investment as our common strategic direction and high aspiration.” They also highlighted the need to improve debt transparency and secure debt sustainability. Both can be considered victories for Japanese diplomats, as they track the policies of the Abe administration.
Now, the focus turns to Prime Minister Shinzo Abe, host of the June 28-29 leaders’ meeting in Osaka. He must secure their endorsement for these programs and policies, bridging the significant distances that remain between national positions. That gathering will test his diplomatic skills, but ultimate success may well depend on the relationship he has nurtured with U.S. President Donald Trump.