G-20 sees role reversal of US, EU leaders on protectionist measures

The Group of 20 meeting between finance ministers and central bank governors of the leading global economies this weekend in Baden-Baden, Germany, was the first clash of the new Trump administration’s “America First” policy and the realities of the interconnected global economy.

The able and globally sophisticated Treasury Secretary Steven Mnuchin defended President Trump’s suspicion of globalization, the benefits of international trade agreements and the need for global efforts to combat climate change.

{mosads}Conversely, the other G-20 countries believe a globalized world of open trade is in their economic interest. In addition, they have come to take on common commitments at the Paris Agreement to combat climate change.

In 1975, the Ford administration initiated the G-6 Summit of industrial democracies in 1975 to promote global economic growth and financial stability. It became the G-7 in 1976, with the addition of Canada; the G-8 in 1998, with the addition of Russia; and the G-20 in 1999, with the addition of 11 of the world’s major emerging economies.

Not since the summit process began more than 40 years ago has there been as much disparity between the views of the U.S. and the other leading economies. There are no binding obligations — its communiques are aspirational — and there have always been differences between the leading nations.  

But the summits have played an important role in steering the countries in the same direction on certain policies. For example, during the 1978 G-7 Bonn Summit, President Carter and German Chancellor Helmut Schmidt reached an agreement, despite the two possessing sharply different viewpoints, on Germany stimulating its economy through tax cuts and the U.S. ending controls on crude oil.

The G-20 played a useful role in coordinating economic policy responses to the financial crisis in 2008. In 2015, the G-20 responded to terrorist attacks in Paris by agreeing to tighten border surveillance.

In the post-World War II era, there has been movement, led by Republican and Democratic administrations, to promote the western economic model of free markets, free trade and global economic integration. Due to the fact Trump ran a populist, anti-globalization, anti-trade campaign, tension was palpable at this G-20 summit.

In just a couple months, the new U.S. administration has abandoned the Trans-Pacific Partnership (TPP), criticized NAFTA, provided no clear signal of a desire to resume negotiations for a Transatlantic Trade and Investment Partnership (TTIP) and raised the possibility of unilateral tariffs  and a border-adjustment tax.

There was a sub-theme to this year’s G-20 summit: sharp U.S.-German disagreements on trade and immigration. President Trump and Chancellor Angela Merkel met at the White House while the summit was taking place across the Atlantic Ocean. During the campaign, Trump equated Merkel and Russian President Vladimir Putin on his trustworthy barometer.

Trump asserted Merkel’s free trade and immigration policies were “ruining Germany.” Now a stream of officials in the administration has criticized Germany for using the low value of the euro for economic domination of Europe and unfair competition with the U.S.

New rifts emerge as #Trump administration rejects free trade statement at #G20 meeting – The Washington Posthttps://t.co/w2iyllgm0h pic.twitter.com/KbgLt9PgIe

— Gregory Grushko (@ggrushko) March 19, 2017

To stress the importance of German job-creating investment in the U.S., Merkel brought the CEOs of major German companies that are significant employers of U.S. workers. It hardly helped. Their meeting was chilly — the president used their joint news conference to complain about how countries have acted unfairly to the U.S. on trade and how much better German trade negotiators have been than those of the U.S. — demonstrated by its large trade surplus with the U.S.

Trump’s assessment of Germany’s trade advantage is incorrect because the European Union, not Germany, negotiates trade deals for its member states. In addition, market forces, not German manipulation, determine the value of the euro.

The president stressed that he did not believe in an isolationist policy. Secretary Mnuchin and the president are correct that Germany’s huge trade surplus has come at the expense of its fellow EU members and the U.S. But the answer lies in encouraging Germany to stress pro-consumption and investment policies.

The G-20 summit was the first act in a battle for the 21st century values of the global economy. Germany leads the call for free trade and investment as a win-win, not a winner-take-all position. In July, Germany will host round two — the G-20 heads of state summit.

President Trump skillfully identified a genuine problem and tapped into an anger for those who see trade deals as the cause of shuttered factories and de-industrialization. In fact, technology is a much more profound cause of the problem than trade. Globalization is not a policy but a reality.

The 2016 Tesla Model X has 46 components produced in 36 different companies headquartered in 12 countries. Virtually every modern product has a global supply chain behind it.

Nevertheless, those who believe in the importance of free trade have an obligation to do much more for workers and communities that have been displaced. Germany is a model example, with its apprenticeship programs, provided education and on-the-job training for the jobs of tomorrow.

The G-20 communiqué between finance ministers demonstrated an agreement on the need to foster greater growth through pro-growth fiscal policy; reduce excessive global imbalances; protect open capital markets against malicious hacking; and combat terrorist financing. But, ultimately, this summit stood in sharp contrast with past G-20 declarations.

In 2016, there was a robust call for joint action to combat climate change. This year’s meeting eliminated any reference to climate change. The major turnabout was on trade. For decades, the U.S. sought G-20 declarations against protectionist policies by foreign governments.

Secretary Mnuchin repeatedly rejected language offered by the German hosts warning against the perils of protectionism, a first for the U.S. Instead, Mnuchin opted for a bland statement to “strengthen the contribution of trade to our economies.” If the G-20 countries were hoping Trump’s aggressive campaign stance on trade would be modified when he took office, they were sadly mistaken.

Stuart E. Eizenstat has held positions in several U.S. presidential administrations, including those of Presidents Johnson, Carter and Clinton. From 1993-2001, he was the U.S. ambassador to the EU, under secretary of commerce for international trade, under secretary of state for economic, business and agricultural affairs, and deputy secretary of the Treasury.

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