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Thursday, Aug 22, 2019

The trade war will dominate G20

Instead of focusing on economic vision, it will be about tariffs

editorials Updated: Jun 27, 2019 19:28 IST

Hindustan Times
Donald Trump and tariffs will dominate the Group of Twenty (G-20) summit in Osaka
Donald Trump and tariffs will dominate the Group of Twenty (G-20) summit in Osaka (Bloomberg)

Donald Trump and tariffs will dominate the Group of Twenty (G20) summit in Osaka because the United States President’s economic vision has narrowed to this single issue. Global markets will watch the trade confrontation between the US and China most closely. Punishing China for a host of economic crimes is one area in which Trump is in alignment with the Washington establishment, so there is little expectation of his finding common ground with Xi Jinping. The expectation is merely that Trump and the Chinese leader will at least agree to keep talking about their differences. But the US president has also criticised almost every major economy at the G20 for unfair trade practices. Trump tweeted most recently against India’s high tariff regime. But he has also criticised Japan, Vietnam, the European Union and others for their trade policies. Much of this is simply the US president’s penchant for public bluster just before trade negotiations. However, it is also deflecting governmental focus away from dangers to global economic growth.

If anything, Trump has helped convert trade into the primary economic constraint to growth. The International Monetary Fund has trimmed its January global growth forecast for 2019 to 3.3%, citing trade disputes as the “primary threat” to increased growth. India and other governments are privately supportive of Trump’s incessant battles with China. Everyone knows that a key reason China has enjoyed such phenomenal export surpluses has been because of hidden subsidies, currency manipulation and the use of non-tariff barriers to imports, notably in services. But Trump’s attacks on the tariffs and trade surpluses of all countries, neither of which are particularly relevant in the 21st century, has meant the US has gained little strategic advantage from its stance on China. Instead, the US is being seen as a source of global economic instability.

The G20 summit will be largely about how various world leaders will each seek to find a means to manage Trump’s trade tantrums. These governments should instead have been wondering how to balance the increasingly disparate economic policies being taken by key governments and central banks. China seems set to continue down the path of debt-driven stimuli to hold up its economy. The US and most developed countries have been unable to wean themselves off easy money to keep their economies afloat. With demand struggling everywhere, it is clear a new policy framework is needed. Populist pushes from both the right and left in most major economies are only making clear policy making more difficult. Instead of trying to tackle these issues, the talk in Osaka will all be about tariffs.

First Published: Jun 27, 2019 19:23 IST

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