Spring Meetings

The New Washington Consensus

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Two peas in a pod. IMF chief Christine Lagarde and US Treasury Secretary Steven Mnuchin shared a podium at this weekend's IMF spring meetings in Washington. Picture source: Reuters.

The Trump administration and the International Monetary Fund, or IMF, have had their fair share of disagreements on trade policy, to put it mildly.

Sparks flew recently when US Commerce Secretary Wilbur Ross dismissed IMF chief Christine Lagarde’s warnings about protectionism as “rubbish.” Yet despite the harsh rhetoric, the IMF and the Trump administration are actually finding common cause when it comes to trade imbalances.

US Treasury Secretary Steven Mnuchin has sought to tone down the White House’s protectionist rhetoric and talk about “reciprocal trade” instead. This could provide cover for the IMF to close ranks with Washington and exert pressure on countries with large trade surpluses – above all Germany, the world’s export champion.

The White House certainly is not backing down. The IMF member states had to drop a normally boilerplate pledge to oppose protectionism in a statement issued after their spring meetings in Washington this weekend.

The White House has not made good on any of its protectionist threats so far, but that is no reason for Germany to assume Washington is bluffing.

Instead of rallying against protectionism, finance ministers agreed to work together to address trade imbalances through “appropriate policies.” It remains unclear exactly what those policies are, though the IMF has already offered plenty of advice for the key target: Germany.

Tobias Adrian, the IMF’s financial counsellor and a German national, told Handelsblatt that Berlin should do more to boost domestic investment as a corrective against its trade surplus. While Mr. Adrian was more diplomatic than Trump administration officials, his criticism largely mirrors the White House position. In a recent statement, the Trump administration called for countries with high trade surpluses and solid finances to aggressively employ fiscal policy to boost imports.

Germany has long faced international criticism over its surplus, which grew by $297 billion in 2016, surpassing China to become the world leader. But this time around, Berlin faces a US administration that has outright threatened to impost tariff barriers if trade imbalances are not addressed.

The White House has not made good on any of its protectionist threats so far, but that is no reason for Germany to assume Washington is bluffing.

Indeed, Jeromin Zettlemeyer, a former chief economist in the German finance ministry, believes the Trump administration will have to act if the the US trade deficit with Germany does not improve in the next couple years.

“It will either have to acknowledge that its logic is not entirely correct, or it will feel forced to respond with protectionist measures,” Mr. Zettlemeyer, now with the Peterson Institute for International Economics in Washington, told Handelsblatt. “Shortly before the election, I would bet on the latter.”

Ironically, though the IMF opposes protectionism, the Trump administration’s threats could be the impetus that forces export powerhouses such as Germany to meet the fund’s long-standing demands.


Martin Greive is a correspondent for Handelsblatt based in Berlin. Moritz Koch has been Handelsblatt’s Washington correspondent since 2013. To contact the authors: koch@handelsblatt.com, greive@handelsblatt.com

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