Finance ministers from the world’s top nations gather in Germany Friday as fears grow that US President Donald Trump could upend the global economic order with his America First policy.
Within two months of moving into the White House, Trump has already torn up the trans-Pacific free trade pact, threatened punitive tariffs against multinationals with factories outside the United States and attacked “currency manipulation” by export giant China.
US Treasury Secretary Steven Mnuchin makes his first official foreign foray when he joins the G20 gathering of finance ministers and central bankers from Friday in the western German spa town of Baden-Baden.
The former Goldman Sachs banker faces scrutiny by Washington’s key trading partners for clues on whether the world’s biggest economy fully intends to abandon its long-standing support of open markets and free trade.
Germany adopted a conciliatory tone ahead of the meeting, shrugging off Trump’s attacks against Berlin over its massive trade surplus.
“There is no reason to be pessimistic about the world economy, and there is no reason to be pessimistic about the relationship with the US,” said a German finance ministry official.
“There are topics that require discussion that are known to all, such as in the area of taxes. We think that these discussions will run constructively and lead to a good understanding,” added the official, who spoke on condition of anonymity.
The official did not specify which tax issue, but among protectionist measures threatened by Trump is a 35 percent levy against BMW if the German car giant pushes on with building a factory in Mexico.
The issue is also expected to come up when Chancellor Angela Merkel meets Trump for the first time in Washington on Friday.
A European colleague was less ambivalent about his concerns, asking: “Will the US continue to believe in the G20?”
And IMF chief Christine Lagarde urged the G20 to “collectively avoid self-inflicted injuries”.
“This requires steering clear of policies that would seriously undermine trade, migration, capital flows, and the sharing of technologies across borders,” she wrote in a message that appeared targeted primarily at Trump.
Another European source noted that “we are in a slightly particular phase, it’s still rather difficult to decipher which way the US is going”.
“We see a difference between the president’s position and those at ministerial level,” added the source.
The tone of the meeting may become clearer on the eve of the G20 talks, when German Finance Minister Wolfgang Schaeuble hosts Mnuchin for talks in Berlin.
The Baden-Baden gathering aims to lay the groundwork ahead of a July leaders’ summit in Hamburg.
The end product of the two-day meeting is a statement that has in past sessions stuck to committing signatories to rejecting protectionism and refraining from competitive currency devaluations.
But fears are running high that this year’s statement may look a little different.
Ahead of the talks, a senior Treasury official said Mnuchin will press partners to fulfill their commitments on exchange rates.
While declining to say if Washington will push for stronger language on the issue, the official stressed that the G20 can be a “helpful” forum to promote issues of interest to the US administration, including boosting global growth and pledges to avoid devaluing currencies to gain a competitive trade advantage.
Exchange rates have been pushed to the forefront once again by White House economic advisor Peter Navarro, who has accused export giants Germany and China of taking advantage of weak currencies to build a trade surplus with the United States.
Likewise on protectionism, the US Treasury official declined to speculate on any changes that might be made to the statement.
But a draft of the concluding statement seen by Bloomberg has sparked concerns because of the glaring omission of an anti-protectionism pledge.
Underlining the importance of repeating past G20 commitments, ECB chief Mario Draghi said that was a “pillar of stability that has accompanied global growth over the last 20 years”.
Likewise, Tokyo fears that omitting anti-protectionist pledges would “give Trump’s administration free rein to take measures against whatever they consider ‘unbalanced trade'”, said Ivan Tselichtchev of Niigata University of Management.
For the EU’s top economic official Pierre Moscovici, Friday’s meeting is all the more important given the unknowns.
“In a time of heightened policy uncertainty, we must seize this opportunity to provide some clarity,” he stressed.