One month after a startling reversion by the G-20 finance ministers and central bankers, who during their latest meeting in Baden-Baden dropped a decade-long tradition of rejecting protectionism and endorsing free trade, pressured by Trump’s delegate Steven Mnuchin, the IMF has done the same, and according to a communique from the IMF’s steering committee released on Saturday in Washington echoed the G-20 reversal, and said that officials “are working to strengthen the contribution of trade to our economies” while omitting a call from its last statement in October to “resist all forms of protectionism.”
The International Monetary and Financial Committee – which is the IMF’s top advisory panel, composed of 24 ministers and central bankers from nations including the U.S., China, Germany, Japan and France – released the statement during the spring meetings of the IMF and World Bank. Since joint statements at gatherings such as the G-20 and the IMF require assent from members, the change in the U.S. position on trade from the Obama administration is forcng modifications in language that was previously uncontroversial.
While the trade language was drastically changed, some positions remained the same: the IMFC statement reiterated pledges from October to “refrain from competitive devaluations” of currencies and to avoid targeting “our exchange rates for competitive purposes.”
There were other changes: in addition to the trade stance, the latest communique omits language from October that welcomed “the entry into force of the Paris Agreement on climate change.” Trump is contemplating whether to make good on his campaign promise to withdraw from the deal, as Bloomberg notes.
The shift in the trade “plege” was due to the Trump administration’s persistent threats to raise tariffs if US trading partners don’t agree to renegotiate trade agreements and create fairer conditions for U.S. goods; in the past week Trump fired the first shot in what may be upcoming trade wars when he signed an executive order looking into curbing steel imports under the guise of “national security” concerns.
While agreeing on paper, most IMF members continued to voice their support for globalization and free trade. As Bloomberg adds, Germany, holder of this year’s G-20 presidency, “commits to keep the global economy open, resist protectionism and keep global economic and financial cooperation on track,” Finance Minister Wolfgang Schaeuble said in his statement to the IMFC. “There is evidently a need to better communicate the benefits of trade and globalization.”
Germany’s position is understandable: with its 2016 trade surplus hitting a record high of €253 billion, with net trade accounting for over 8% of German GDP and with Germany’s current account at over 8.5% of GDP, nearly four times greater than China, many have wondered why Trump is so focused on China when it comes to trade, and has given Germany a free pass. To be sure, any changes in the global trade regime would have dire consequences on the German economy, which together with the cheap Euro, kept artificially lower by the poor peripheral European states, explains why Germany is such a vocal supporter of globalization and free trade: it is the world’s biggest beneficiary from it!
Unlike Schauble, comments from U.S. Treasury Secretary Steven Mnuchin, by comparison, did not refer to resisting protectionism. Instead, Mnuchin said that “.we will continue to promote an expansion of trade with those
partners committed to market-based competition, while more rigorously
defending ourselves against unfair trade practices.”
In retrospect, it is somewhat odd why having flipped on virtually every other pre-election promise, Trump remains so adamant on changing the global trade regime; and a more nuanced and direct question: what will Goldman get out of a protectionist shift?
In addition, in language that was seen as a jab at Germany Mnuchin said that “countries with large external surpluses and sound public finances have a particular responsibility for contributing to a more robust global economy.” That responsibility will only grow drastically if in just over 24 hours Le Pen and Melenchon are delcared winners of the first round of the French presidential election/