Simon Kennedy and Kevin Carmichael/Bloomberg
Finance ministers from the Group of Seven industrial nations may use their meeting on 13 April to mount a defence of free trade against what the International Monetary Fund this week called the “serious danger” posed by protectionism.
In a bid to narrow the trade imbalances fanning the protectionist push, the G-7 will press the IMF to accelerate its crackdown on currency manipulation. The officials will also deliver another push to restart struggling global trade talks.
“There is a sense of unease in many of the developed countries” about trade, said Tim Adams, the U.S. Treasury undersecretary for international affairs, in a press briefing in Washington on 12 April. “We need to do a better job of telling the story of the benefits of free trade.”
The gathering in Washington comes as U.S. legislators pursue at least five bills aimed at slowing imports from China that contributed to a record trade gap last year. In Europe, French presidential front-runner Nicolas Sarkozy has called unrestricted free trade a “policy of naivety,” promising further insulation for French companies if elected.
American legislators are debating bills including one that allows companies to petition for sanctions against nations that manipulate their currencies. Another proposal permits duties on imports from China to compensate for government subsidies.
Treasury Secretary Henry Paulson, hosting today’s meeting, said in a 1 March speech on trade that there is a “worrisome” trend toward protectionism among both Republicans and Democrats.
Even as finance ministers extol the virtues of free trade, their governments have recently resorted to some forms of protectionism to fend off criticisms from electorates. Since the G-7’s last meeting in February, the U.S. imposed tariffs on China, reversing two decades of trade practices.
“It’s very important to get out there and make a strong statement about the importance of trade,” said John Taylor, Adams’s predecessor at the Treasury and now a professor of economics at Stanford University‘. “We fail on this and it’s going to fuel protectionist sentiments.”
The G-7 ministers may try to quell such worries as they gather today with central bank governors at the U.S. Treasury, before the semiannual meetings of the IMF and World Bank 14-15 April. They are scheduled to release a statement on the economic outlook and speak with reporters at about 7 p.m. in Washington.
A five-year push to reduce trade barriers, known as the Doha round of World Trade Organization negotiations, is struggling as governments seek to defend domestic interests. The talks stalled after the European Union, Japan and India rebuffed U.S. demands for further tariff reductions on farm goods and the Bush administration refused to make deeper cuts in subsidies.
Europe, the U.S. and Japan must go the “extra mile” to rejuvenate stalled global trade talks, IMF Managing Director Rodrigo de Rato told reporters in Washington yesterday.
The World Bank has reduced its estimate of the benefits to the global economy from securing a trade deal to $96 billion a year, from the $800 billion it forecast when the talks began. That is because negotiators have scaled back their ambitions to find a compromise.
Concern about the risk of escalating trade spats jumped after the U.S. Commerce Department raised duties on Chinese glossy paper, alleging illegal subsidies. The decision opens the way for textile producers, steel companies and other manufacturers to seek similar protections. Two weeks later, the U.S. filed two complaints at the WTO alleging Chinese piracy of copyrighted movies, music, software and books.
Refusing to rule out retaliation, China warned the moves would “seriously damage” bilateral cooperation and business ties. Chinese finance ministry and central bank officials will attend tomorrow’s G-7 dinner as well as the IMF and World Bank meetings. People’s Bank of China Governor Zhou Xiaochuan and Finance Minister Jin Renqing are skipping the gatherings because of last-minute government meetings, spokesmen said this week.
“I see creeping protectionism in the industrialized countries and find that extremely worrisome,” said former U.S. Trade Representative Carla Hills.Much of U.S. lawmakers’ frustration revolves around the value of China’s currency, which they say the government manages to aid exporters. The American deficit with China widened 15% to a record $232.5 billion in 2006. Europeans are also increasingly concerned after the euro-area’s trade gap with China expanded 20% to 89.7 billion euros ($121 billion).
One hurdle is that the IMF has yet to deliver on a yearlong effort to increase surveillance of global exchange rates, with the goal of reducing trade imbalances. The fund was charged to work on the initiative with the U.S., euro region, Japan, Saudi Arabia and China.