Once a reliable defender of open-market liberalism, the American position toward free trade in the era of Donald Trump has been ambivalent at best and hostile at worst. As a result, multilateral organizations are now looking beyond Washington for leadership. And they appear to have set their sites on Berlin.
Chancellor Angela Merkel, who currently chairs the G20 group of advanced and major emerging economies, has emerged as a leading advocate of open markets – a key position as US protectionism and Brexit take hold. In a joint statement issued after their meeting in the German capital on Monday, Ms. Merkel, together with the heads of the International Monetary Fund, the World Trade Organization, the World Bank, the club of industrialized countries OECD and the International Labor Organization, all stressed the importance of free trade in sustaining global economic growth.
They also emphasized the importance of the WTO for coordinating trade policy and respecting the organization's rulings. The Trump administration has indicated that it might ignore WTO rulings if it determines that they infringe on US sovereignty.
IMF Chair Christine Lagarde acknowledged that trade has left some workers in the developed world behind.
Though they didn’t mention the US president by name, Ms. Merkel and the key multilateral organizations sent a clear message to the Trump administration, just a week before the G20 gathers in Washington for the IMF’s spring meeting.
But sparks aren’t likely to fly in the US capital just yet – at least not in public anyways. The G20 has decided against issuing a joint statement at the IMF meeting for the first time in years, as Handelsblatt has learned from sources close to the matter.
The decision comes after US Treasury Secretary Steve Mnuchin prevented the G20 finance ministers in Baden-Baden from adopting a joint statement condemning protectionism and backing free trade last month. Sources told Handelsblatt that the decision to forgo a public statement at the upcoming IMF meeting has to do with the limited amount of time available since the meeting last month. The row in Baden-Baden, however, may also have played a role.
Though the Trump administration’s threats may have created a greater sense of urgency, protectionism has actually been on the rise since the 2008 financial crisis. Angel Gurria, the head of the OECD, told Handelsblatt his organization found 1,400 protectionist measures among the G20 economies in a recent survey.
The global system of free trade has now reached a critical juncture, according to a joint report by the IMF, World Bank and WTO. For years, it was the motor of the global economy – and grew twice as fast. In 2016, however, trade growth was at a mere 1.7 percent, half the rate of the global economy.
Trade has benefited both emerging and developed economies. World Bank Chief Jim Yong Kim said global trade has lifted more than a billion people of out poverty, some 800 million of whom live in China. Trade has also reduced prices in the developed economies by two-thirds, according to the report.
Ms. Lagarde, however, acknowledged that trade has left some workers in the developed world behind. For this reason, she argued, economic policy must also focus on helping people adjust to changes in the labor market. The IMF, the WTO and the World Bank all emphasized the importance of mobility. Workers should be able to switch jobs, branches and regions more quickly, Ms. Lagarde said. The public sector should also provide aid in the form of training programs and wage insurance.
Nevertheless, Ms. Lagarde also points out that trade is not the main factor in labor market disruption. That would be automation, which is accountable for some 80 percent of job losses.
Indeed, finding work for those whose jobs have been eliminated by robots could prove a much more difficult task than promoting open markets.
Torsten Riecke is Handelsblatt's international correspondent. Handelsblatt editors Dana Heide and Martin Greive contributed to this article. To contact the author: [email protected]