G-20 Summit comes at critical juncture for global trade

German Chancellor Angela Merkel has hosted President Donald Trump and the other G-20 leaders on Friday and Saturday in Hamburg. Merkel chose the location for the G-20 Summit with care. The city is a symbol for openness and has been a center of international trade dating back to the Hanseatic League in the 11th century.

Undoubtedly, trade has played a big role at the summit. However, the meeting must be difficult, as disagreements over the meaning of free and fair trade have emerged within the G-20. The impact of trade imbalances has shaped the debate — especially on the transatlantic level.

{mosads}Against the backdrop of the recession in 2008, the G-20 leaders — including then-U.S. President George W. Bush and Chancellor Merkel — took decisive action. They committed themselves to an open global economy grounded in free market principles: rule of law, respect for private property, open trade and investment, competitive markets and efficient, effectively-regulated financial systems.

Moreover, the leaders strongly rejected protectionism and isolationism. By mandating the World Trade Organization (WTO) to monitor G-20 trade policies, the leaders helped prevent a protectionist spiral like the Great Depression of the 1930s.

Almost a decade later, the G-20 members are unable to find common ground on trade. The WTO, the Organization for Economic Cooperation and Development (OECD) and the United Nations Conference on Trade and Development (UNCTAD) have just delivered their report on G-20 trade and investment measures, which shows yet again an increase in trade barriers.

From mid-October 2016 to mid-May 2017, the WTO recorded a total of 42 new trade-restrictive measures: new or increased tariffs, customs regulations and rules of origin restrictions. Since 2012, the WTO counted 430 new trade restrictions — not taking into account new antidumping and anti-subsidy measures. Trade growth has been sluggish, at just 1.3 percent last year. This is well below the growth rate since 1980, when trade increased on average about 4.7 percent annually. In many industrialized countries, anti-globalization sentiments are rising.

The G-20 leaders should send a strong signal for open markets as they meet in Hamburg. Without a doubt, they need to address trade policies that distort competition: products being dumped on world markets because of overcapacities, intellectual property rights violations, or discrimination in government procurement. But the preoccupation with trade balances is misguided.

Rather than resulting from unfair trade, imbalances are more often due to structural factors: competitiveness of businesses and products, currency effects, capital flows, domestic investment, demographics and savings rates. Take Germany, for example. With 81 million inhabitants, the domestic market is relatively small, so the country depends on foreign markets.

Germany is deeply integrated in regional and global value chains: imported inputs account for almost 30 percent of its exports. Moreover, German companies invest massively abroad. The U.S. has been an important destination for German foreign direct investment, totaling $255 billion by the end of 2015. Through this investment, German companies contribute to economic growth and job creation in the U.S. They account for 672,000 jobs, with almost half in manufacturing.

It is not just German companies that contribute positively to the U.S. economy. By the end of 2015, total foreign direct investment in the U.S. stood at approximately $3.1 trillion, and foreign affiliates created around 6.4 million jobs. It is clear: The United States benefits greatly from globalization.

Protectionism is not the right solution for unfair trade policies or growing skepticism about globalization. The Business 20 — the official dialogue of the G-20 constituting more than 700 members of the world’s business community, including many U.S. companies — agrees: Trade rules need to be enforced. But rather than unilateral retaliation, the best way is through the strong dispute settlement procedure of the WTO.

In addition, trade rules should be modernized to reflect 21st-century trade, particularly by opening trade in services and digital trade — areas in which the United States is especially competitive. Finally, the G-20 needs to find solutions for those who feel left behind. This means better explaining the benefits of globalization. But it also means investing more in education and providing people with appropriate and future-oriented skills.

The German dual system of vocational training is one prominent example. Many young people have participated in these programs — including in the U.S. — that combine on-the-job training with classroom education. This not only closes the skills gap faced by many industries, but more importantly enables young people to confidently enter the workforce knowing they are prepared to meet the challenges of a global economy.

In Hamburg, the G-20 should stand together to regain people’s trust in globalization by strengthening what has been built over the past decades: open global markets that promote economic growth and inclusiveness.

Stormy-Annika Mildner is the sherpa of the Business 20 (B20), the official engagement partner of the German G20 Presidency and the head of the External Economic Policy Department at the Federation of German Industries (BDI). Email Stormy at S.Mildner@bdi.eu.

Daniel Andrich is the president and CEO of the Representative of German Industry and Trade (RGIT) in Washington, D.C. RGIT serves as the liaison office of the Federation of German Industries (BDI) and Association of German Chambers of Commerce and Industry (DIHK). Email Daniel at dandrich@rgit-usa.com.

The views expressed by contributors are their own and not the views of The Hill.