America First as trade policy is here, or looming, as language lost by the G20 debuts, conspicuous by its absence. Might payments suffer in the wake of truncated free trade?
In the ongoing battle over protectionism versus free trade, protectionism seems to have won a skirmish.
A skirmish is just part of a war. But in this case, we’re getting a sense of the battlefield.
As noted widely across several media outlets, the G20 countries, which as a group includes the biggest individual economies across the globe, have used language in a formal statement issued last week that has been and continues to be widely parsed for its avoidance of the free trade issue.
That issue has remained front and center as the Trump administration moves toward sweeping changes in many areas of economic policy.
One indication of the breadth and scope of those changes includes what is not included: In this case, as noted by CNNMoney, a two-day meeting last week in Germany of central bank governors and finance ministers — from countries as diverse as China, Germany and the United States — issued a formal statement, post meeting. That’s a tradition, and this time around the language was rather loose, referring to “working to strengthen the contribution of trade to our economies.”
That is a far cry from previous language that calls for those member nations to “resist all forms of protectionism” and was noted upon the last group meeting in July 2016. CNNMoney said that China and Australia wanted that commitment against protectionism to remain in place. The site noted that German Finance Minister Wolfgang Schäeuble had been quoted as stating that the language was tied to sentiment that could be agreed upon by all participants.
The upshot? Language is language, but this is no mere speechifying, and language here lays bare a rift. The abandonment of the language tied to free trade may presage, if not abandonment of free trade as a practice, then a rigorous debate over free trade laid bare in public.
Would the debate be enough to scare off companies that aim to boost their presence across borders? If nothing else, free trade is a bedrock of economics that has become a global one since the 2008 financial crisis.
The U.S. position has been telegraphed, as the Trump administration left a Pacific trade agreement, and NAFTA is on the table for reconfiguration, perhaps with a sledgehammer and not a scalpel. But at issue is the whole $2.7 trillion in import activity that finds its way into the United States. “America First” may be the rallying cry that lies as a corollary to the language (or in this case, absence) of language offered by the G20.
The challenge to the free-trade bedrock that had once been seen as, well, non-porous, begs the question of just what happens next in an ongoing evolution. The current administration has said that it would tax domestic companies looking to manufacture abroad, and at rates that would be rather punitive. At the same time, “buy American and hire American” are guiding statements that on their face seem to be bent on keeping money within U.S. borders — and none of these augers well for international payments or innovations that look toward growth in those payments to justify the human capital and capital that need to be invested in order to bear fruit.
Where eyes turn inward, it becomes harder to see new horizons.
One early casualty on this battlefield may be the consumer, especially in the U.S. If taxes are indeed levied on imports, then in at least some measure, prices charged will have to rise. That means, of course, less disposable income, all things being equal. In this war, one wonders who the victors might be.
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