By Barnaby Chesterman
Buenos Aires—US President Donald Trump’s latest attacks on China and the European Union will shape the discourse on global trade conflicts and competitive devaluation as Group of 20 finance ministers meet in Buenos Aires this weekend.
Trump’s protectionist policies that have seen him slap steep tariffs on steel and aluminum, angering allies such as the EU, Canada and Mexico, already looked set to fashion discussions between finance ministers and central bankers from the world’s 20 leading economies during two days of meetings.
That is even more the case after his latest Twitter outburst on Friday saw him accuse the EU and China of “manipulating their currencies and interest rates lower,” while he also took aim at the US Federal Reserve for hiking interest rates, complaining that it eroded “our big competitive edge.”
China and the US have no plans for bilateral talks, according to US Treasury Secretary Steven Mnuchin, who has vowed to “respond to concerns on US trade policies” when he meets with fellow ministers.
But China will be a hot topic as Group of Seven ministers hold a one-hour session on the margins of the wider meeting, not least after Trump threatened to crank up punitive tariffs against the country to include the entire $500 billion in goods the US imports from the Asian powerhouse.
As well as his steel and aluminum duties, and threats to likewise hit foreign car imports with tariffs, Trump has already slapped China with a 25 percent levy on $34 billion in goods, with another $16 billion on the way.
Other than announcing counter-measures, China has kept relatively quiet over Trump’s various threats—perhaps safe in the knowledge that his tariffs are a drop in the bucket next to their expected $2.4-trillion exports for 2018.
But German Chancellor Angela Merkel warned that the EU was “ready” to respond to the US should more excises be forthcoming, describing current trade tensions as “very serious.”
International Monetary Fund chief Christine Lagarde, whose press conference will kick off activities on Saturday morning, said earlier this week that increasing trade restrictions pose “the greatest near-term threat” to the world economy, despite projected growth of 3.9 percent through 2019.
She also warned Trump that “the US economy is especially vulnerable” due to “retaliatory measures.”
IMF economists say that in a worst case scenario $430 billion—a half point —could be cut off global GDP in 2020 if all tariff threats and retaliation are implemented.
Others are also worried about Trump’s measures, including India, which alongside China, Brazil, Russia and South Africa make up the five emerging market BRICS countries, all of which are G20 members.
“All BRICS members have benefitted from globalization. All of them need finance and capital inflows,” said Sreeram Chaulia, dean at Delhi’s Jindal School of International Affairs.
As well as the dollar, rising oil prices and US interest rates have helped fuel the capital flight from emerging economies such as Brazil and Argentina, with investors taking out $14 billion between May and June.
“The meeting will take place against the backdrop of ongoing financial vulnerabilities in emerging market economies and global trade tensions,” said Australian Treasurer Scott Morrison.
He headed to Buenos Aires planning to urge G20 members to keep markets open.
“History is clear: when trade barriers go up, growth and jobs go down,” he added.