There is much hand-wringing in the financial media this week after Treasury Secretary (and Lego Batman producer) Steve Mnuchin helped push the G-20 to remove its long standing language to “reject protectionism” from its annual statement. While the Trump administration’s embrace of anti-trade policies is a very real concern for the global economy, it is worth noting that the G-20’s desire for free trade was every bit as sincere as the UN’s commitment to human rights. What the G-20 members call “free trade” is really government managed trade, complete with complex multinational trade agreements that Trump is right to oppose.
After all, if the G-20’s criticism of protectionism was worth more than the ink it was written with, then there could have easily long been an agreement dropping all trade restrictions — or at the very least anti-trade policies between member countries. Yet instead every single member of the G-20 engages in a variety of protectionist schemes.
For example, Canada engages in staunch milk protectionism, which has led to US dairies asking Trump to retaliate against America's usually hospitable neighbors to the north. In India, while various trade deals restrict the nation's ability to establish tariffs, the country has worked around such restrictions in recent years by increasing fees and price controls on certain imports. Similarly Japan, a country with a long legacy of protectionism, has been harshly criticized by US auto manufactures for non-tariff barriers such as anti-competitive regulatory burdens.
While many in the Western media are trying to prop up Angela Merkel as the post-Trump “Leader of the Free World”, in part due her views on “free trade”, Germany and the EU’s response to Brexit have revealed just how superficial these views really are. Merkel herself has threatened to close off the UK from Europe's common market if it refuses to outsource its immigration policy to the EU. If Germany and the EU were actually interested in trade for its mutual economic benefits, rather than as a weapon for political influence, then access for the UK – or any other country – to the EU’s market wouldn’t come at the expense of national sovereignty.
In the aftermath of Trump's election China has aggressively positioned itself as a new champion of free trade, with President Xi Jinping vocally defending the benefits of modern globalism. While it is true that China has taken great steps towards liberalizing its economy, even its bilateral trade agreements with countries like Australia carry with it bureaucratic red tape. Further, while China is glad to open up its manufacturing and agricultural sectors to global markets, the country aggressively protects its tech sector from foreign competition. While most of the attention paid to the “Great Firewall of China” is on censorship (something that also exists in Merkel’s Germany, the rest of Europe, and increasingly in the US) it also serves to incubate Chinese tech companies against the forces of the market. As Zhang Weiwei, the director of the Center for China Development Model Research, notes “there would be no Baidu or Alibaba” without China’s protectionist policies.
Of course America itself has embraced targeted protectionism long before Donald Trump ever thought about running for president. As Andrew N. Smith wrote just this week, America places tariffs on over 12,000 different goods and services, and coddles a number of industries including sugar, peanuts, and steel.
The protectionist rhetoric from Trump’s administration should worry anyone concerned about economic growth and international peace, but he is not challenging a golden age of free trade. In fact, the most troubling development from this past G-20 meeting isn’t disagreement over the elimination of a disingenuous sentence, but it's re-commitment for greater coordination in tax enforcement. As it did last year, the G-20 warns that “defensive measures will be considered” for countries that don’t comply with the development of “a globally fair and modern international tax system.” The more governments cooperate for tax enforcement, the greater the loss for individual privacy. Count on the War on Cash continuing to escalate among G-20 members.
The G-20 also had a new message for digital finance this year:
[W]e encourage all countries to closely monitor developments in digital finance, including consideration of cross-border issues, both in their own jurisdictions and in cooperation with the FSB and other international organisations and standard setting bodies. We welcome the FSB (Financial Stability Board) work on the identification, from a financial stability perspective, of key regulatory issues associated with technologically enabled financial innovation (FinTech).
Expect to see central banks and financial regulators increase their scrutiny of cryptocurrencies.
