US Treasury Secretary Steve Mnuchin

How goes the war against free trade?

We recently noted how various countries had sought to take credit for resisting the Trump administration’s push to remove all reference to resisting protectionism from the G20 communique, a fairly irrelevant piece of paper in terms of practical outcomes but highly symbolic of the global economic temperature.

But unlike the G20, the International Monetary Fund, composed at it is of central bankers and high-power economic bureaucrats, is surely made of sterner stuff on that front? Not quite. The IMF has just concluded its Spring Meeting in Washington DC. Doubtless the issue of protectionism was discussed. After all, in last week’s World Economic Report it warned “with persistent structural problems –such as low productivity growth and high income inequality — pressures for inward-looking policies are increasing in advanced economies. These threaten global economic integration and the cooperative global economic order that has served the world economy, especially emerging market and developing economies, well.” The report repeatedly expressed concern about the “salient threat” of “a turn toward protectionism, leading to trade warfare”.

But that’s a no-no for the Trump administration and its spearhead, Treasury Secretary Steve Mnuchin, a former Goldman Sachs banker and Hollywood film financier. The Americans rejected any mention of protectionism by the fund, through its key advisory body, the International Monetary and Financial Committee (IMFC). That comprises finance ministers and central bankers from around the world, including China, India, Japan, Mexico, Cameroon, Algeria, Canada, Russia, Germany, the UK and the US, and advises the Fund’s Board of Governors on the supervision and management of the international monetary and financial system.

In a statement issued on Saturday, the committee said it would “promote a level playing field in international trade” but did not repeat its previous commitment to “resist all forms of protectionism” (the same wording the G20 had been using until the Trump people showed up).

Agustin Carstens, the governor of the Bank of Mexico who currently chairs the IMFC, suggested the previous reference to resisting protectionism had been removed because “the use of the word protectionism is very ambiguous”. “Our final goal is just to take advantage of trade. Nobody denies that and I think everybody is in line that we need free and fair trade,” he said at a press conference in Washington on Saturday afternoon. 

Mnuchin’s pre-prepared remarks to the IMF included that the US would “continue to promote an expansion of trade with those partners committed to market-based competition”. That is, if the US has a trade imbalance in your favour, they’ll invent some reason to label you as failing to allow “market-based competition”.

But while agreeing to the communique, most IMF members continued to voice their support for globalisation and free trade. Germany, holder of this year’s G20 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.”

Which is easy to say when your country has a quarter-trillion euro annual trade surplus. And far easier said than done.

 

Peter Fray

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