Trade tensions simmer as Morneau, finance ministers hold G20 meetings

Irving Hamilton
July 22, 2018

"We are all, particularly us European countries, anxious about this trade war that was launched a few weeks ago", Le Maire told AFP from Buenos Aires, where the two-day Group of 20 summit amongst finance ministers got underway.

Trump has angered European allies by imposing import tariffs of 25 percent on steel and 10 percent on aluminum, causing the European Union to retaliate with similar amounts of tariffs on Harley-Davidson motorcycles, Kentucky bourbon and other products.

Long-simmering trade tensions have burst into the open in recent months, with the United States and China - the world's largest and second-largest economies - slapping tariffs on $34 billion worth of each other's goods so far.

France's finance minister Bruno Le Maire told AFP on Saturday that the United States must avoid pushing the world into a "survival of the fittest" scenario through tit-for-tat trade sanctions.

The International Monetary Fund (IMF) warned world economic leaders on Saturday that a recent wave of trade tariffs would significantly harm global growth, a day after U.S. President Donald Trump threatened a major escalation in his dispute with China.

Mnuchin said he would tell G-7 allies that the Trump administration was ready to make a trade deal with them and had placed a high priority on completing the North American Free Trade Agreement (NAFTA) with Mexico and Canada.

"U.S. trading partners are unlikely to be in a conciliatory mood", said Eswar Prasad, worldwide trade professor at Cornell University and former head of the global Monetary Fund's China Division.

Global growth also may have peaked at 3.9 percent for 2018 and 2019, and downside risks have risen due to the tariff spat, the International Monetary Fund said.

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"While all countries will ultimately be worse off in a trade conflict, the US economy is especially vulnerable", IMF Managing Director Christine Lagarde wrote in a blog post."Policymakers can use this G20 meeting to move past self-defeating tit-for-tat tariffs".

Mnuchin said that while there were some "micro" effects, such as retaliation against USA -produced soybeans, lobsters and bourbon, he did not believe that tariffs would keep the United States from achieving sustained 3 percent growth this year.

Mnuchin told reporters on Saturday that he has not seen a macroeconomic impact from the US tariffs on steel, aluminum and Chinese goods, along with retaliation from trading partners.

The U.S. dollar fell the most in three weeks on Friday against a basket of six major currencies after Trump complained again about the greenback's strength and about Federal Reserve interest rate rises, halting a rally that had driven the dollar to its highest level in a year.

Last time the G20 met, there was no firm agreement made on trade policy besides a statement that there would be "further dialogue" on the matter. The U.S. and China have slapped tariffs on $34 billion USA worth of each other's goods so far.

"Unfortunately, it does not look like we will take big steps forward in Buenos Aires", German finance minister Olaf Scholz told Reuters.

Rising trade tensions have led to concerns within the Japanese government over currency volatility, said a senior Japanese G20 official, who declined to be named.

The question now is whether the trade war he has cultivated will escalate to include new tariffs on auto imports. "I think restraint will eventually take hold".

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