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G20 in Standoff over Trade Policy

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German Finance Minister Wolfgang Schäuble and U.S. Treasury Secretary Steve Mnuchin stressed their common ground during a meeting in Berlin Thursday. AP Photo/Michael Sohn

Members of the G20 group of leading economic powers are in a dispute over trade policy ahead of the bloc’s meeting of finance ministers in the German town of Baden-Baden later this week, Handelsblatt has learned from sources in participating countries.

Several G20 country representatives demanded on Wednesday that a commitment to free trade should be included in the final statement by the finance ministers, who will meet on Friday. The states taking the lead include France, Brazil and Singapore, among others.

The U.S. government, especially, has refused to include a clear rejection of protectionism in the statement, the sources said, and is reportedly moving forward with plans for imposing possible import tariffs on certain goods by the summer.

The trade differences were largely papered over during a press conference Thursday evening between German Finance Minister Wolfgang Schäuble and U.S. Treasury Secretary Steve Mnuchin, who was in Berlin before heading to Baden-Baden for Friday.

But the trade spat did prompted another rather unusual development Thursday: German Chancellor Angela Merkel called Chinese President Xi Jinping to coordinate the two G20 members’ policies on trade ahead of her own meeting with U.S. President Donald Trump on Friday in Washington, government sources told Handelsblatt.

And while the U.S. treasury secretary and German finance minister said they had come to a common understanding on trade, there were some clear signs of the differences between the two major economic powers in their language.

“It is not our desire to get into trade wars. It is our desire to deal with an imbalance in certain trade partnerships.”

Steve Mnuchin, U.S. Treasury Secretary

While Mr. Mnuchin stayed away from commenting on import tariffs, he focused his comments largely on the need for “balanced trade” and repeatedly suggested the U.S. president was prepared to renegotiate trade deals that were not deemed in the United States’ best interest.

“The president does believe in free trade, but he wants free and fair trade,” Mr. Mnuchin said, adding later: “It is not our desire to get into trade wars. It is our desire to deal with an imbalance in certain trade partnerships.”

Mr. Schäuble, for his part, stressed the need for “global solutions” to improve economic growth and defended Germany’s record trade surplus, which has been an especially sore spot in relations between German and Trump administration officials over the past few months.

“The solution lies within the euro zone and not Germany alone,” he said, once again gently nudging the European Central Bank, which German officials blame for keeping interest rates – and thereby the value of the euro – too low.

Mr. Schäuble has an interest in Friday’s G20 meeting on his home soil going well. Sources say it has been Germany, the host country and president of the G20 meetings this year, that is pushing for a compromise over the final statement. The idea would be to include a free-trade commitment in a list of economic and fiscal principles. This list could become an attachment as an addendum to the statement of the G20 finance ministers, the sources said.

Still, representatives from finance ministries were apparently arguing about certain key formulations. A draft of the compromise list of principles states that the G20 will stand for a “multilateral” and “rules-based” trade policy, but the U.S. government is reportedly critical of this formulation. Mr. Mnuchin, in Thursday’s press conference, repeatedly used the terms “fair,” “balanced” and “reciprocal.”

Read our in-depth coverage of Germany’s G20 presidency.

President Trump, on the campaign trail and since becoming president, has repeatedly threatened to impose tariffs to protect his country against cheap imports and suggested he doesn’t necessarily feel bound by multilateral agreements.

U.S. Treasury Secretary Mnuchin has reportedly taken a tough position in the negotiations at Baden-Baden. He has emphasized that the U.S. government is sticking to its plan for a border-adjustment tax. This would make imports to the United States more expensive, a potentially damaging move for Germany’s export-led economy.

German Finance Wolfgang Schäuble has said he hopes that such a tax wouldn’t come soon. But the U.S. representative in Baden-Baden has apparently said the U.S. Treasury has been tasked with proposing a boarder-adjustment tax by late summer, people close to the negotiations told Handelsblatt. Mr. Mnuchin wouldn’t comment on such plans during Thursday’s press conference.

 

Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin and is deputy managing editor of Handelsblatt’s Berlin office. Christopher Cermak is an editor with Handelsblatt Global in Berlin. To contact the author: hildebrand@handelsblatt.com

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