China ‘adamant’ against protectionism as G-20 trade debate drags
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Frankfurt/Tokyo: China is leading a defence of the existing system of global trade, as the Group of 20 tackles US demands to move away from multilateral agreements.
Chinese finance minister Xiao Jie said in a statement on Saturday that the G-20 should be “adamantly against” protectionism. That reflects talks in Germany on Friday and Saturday over a planned statement by the world’s biggest economies, where officials with knowledge of the matter say China has been the most insistent on a commitment to the rules-based system that the World Trade Organization represents.
By Saturday morning, negotiations in Baden-Baden had bogged down on how to deal with trade pledges from previous G-20 meetings, and the effort to include a commitment to “resist all forms of protectionism” was ongoing in the face of US resistance, according to people familiar with the talks. The people asked not to be named as the discussions aren’t public. That debate is continuing Saturday in an effort to find agreement before the end of the meeting.
Readings so far suggest that the US delegation under Treasury Secretary Steven Mnuchin is engaged in the process, despite being sent by a young administration that has criticized multilateralism and which is still building its policy agenda. Even so, the impasse reflects the atmosphere the previous day at the White House, where US President Donald Trump met German Chancellor Angela Merkel and repeated his complaints that his country has been treated “very, very unfairly” in trade arrangements.
“It’s an administration, the fruit of American democracy, that needs to be respected, but also with a lot of resolve on the French position, which is shared by a lot, if not to say all the members of the G-20 except for this country,” French finance minister Michel Sapin told reporters on Friday. “We don’t want a rollback on what was said before by the G-20.”
If Trump sees Germany — which has a $68 billion trade surplus with the US — as having gotten the better of trading arrangements, China falls into the same category. Its newly found stance as the prime defender of the status quo reflects its economic gains under the rules-based system since it joined the WTO in 2001.
US officials have criticized that setup, with the director of the National Trade Council, Peter Navarro, saying China’s accession was to blame for much of a 15-year American slowdown.
“China has been able to do well based on the multilateral system; it has been able to leverage the gray areas,” said Dominico Lombardi, director of global economy at the Centre for International Governance Innovation in Waterloo, Ontario. “The Trump administration is for a level trading field. In the case of China, there are complaints of subsidies so ‘fair’ trade is what Washington wants to push for.”
Mnuchin and Xiao are due to hold a bilateral meeting in Baden-Baden on Saturday, one of the G-20 officials said.
While Trump started his presidency by shooting down regional trade deals and floating measures such as a border tax, his Chinese counterpart Xi Jinping laid out his position at the World Economic Forum in Davos this year when he said protectionism was like “locking oneself in a dark room.”
That his sentiment is shared by many in Baden-Baden was shown when Germany, which holds the rotating G-20 presidency this year, sought to compromise by referring to “fairness, openness and inclusiveness” in trade. It was knocked back by delegations including France, the UK, Italy, Brazil and the European Union.
Germany’s intent was to accommodate some US concerns to keep it involved in the multilateral process, rather than to isolate and antagonize the delegation, giving the Trump administration an excuse to turn its back, people familiar with the matter said.
“It’s about the right way to formulate the openness of world trade in the communique,” Schaeuble said at a briefing with reporters on Friday. “There are some sensitivities here.”
For his part, Mnuchin stressed that trade is only fair if it’s balanced, and although he argued that the US is unfairly treated, he didn’t elaborate on what that meant in detail, according to a G-20 official familiar with the discussions.
Finance ministers and central bankers aren’t usually the key officials for trade talks, but their statements normally reflect a consensus. This time, if they can’t agree, the topic could be pushed to a leaders’ summit in July, Sapin said.
That could play in China’s favour. In a phone call on Thursday, German Chancellor Angela Merkel and Xi reaffirmed their common support for free trade and open markets.
In the meantime, delegates are making a final push to reach an agreement before they head out of the German spa town.
Japan, whose Prime Minister Shinzo Abe has been keen to foster relations with the Trump administration, isn’t opposed to mentioning fairness, according to a G-20 official who asked not to be named.
Canadian Finance Minister William Morneau referred to “fair trade” in a Frankfurt speech one day before the G-20. Canada may be tempted to avoid conflict as it prepares for potential North American Free Trade Agreement talks, while also carrying on exploratory talks with China and pushing for ratification of its EU trade deal.
Morneau is pushing for pro-trade language in the final communique, a Canadian government official said on Friday, adding that the inclusion of such a reference is more important than the precise wording.
Other language in the communique is also under review. A pledge to refrain from currency manipulation is expected to remain largely unchanged from last year, one G-20 official said. Little time is being devoted to global banking regulations, with major developments not expected, and a whole section on climate change is set to be dropped. But the focus remains trade.
“The US has been pushing a more protectionist agenda -- the high uncertainty at the moment is what that will exactly look like,” said Torsten Slok, chief international economist at Deutsche Bank in New York. “It makes sense that in this case the Chinese, who benefit from a rules-based trade system, are trying to preserve it. We just don’t have any firm ideas about what the alternative will be.” Bloomberg