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Mnuchin at G-20 Plays Nice While Snubbing Rules of World Trade

Bloomberg logoBloomberg 3/19/2017 Jeff Black

(Bloomberg) -- When U.S. Treasury Secretary Steven Mnuchin left the Group of 20 meetings in Germany this weekend, the worst that delegates had to say about him was that he’d been sent a little unprepared.

It would be far more serious for the global system of multilateral organizations, like the G-20, if unpreparedness from U.S. officials were to morph into disinterest.

Mnuchin wasn’t able to deliver a clear view on how the “America First” thrust of the Trump administration will mesh with the rules embodied in the World Trade Organization system that currently stand -- or even if the U.S. will remain substantially engaged over the long term. As the administration is less than two months old, the former Goldman Sachs banker was given the benefit of the doubt when he didn’t offer much detail.

But as the basics of Trump policy are diametrically opposed to the status quo, that still meant that on trade policy, delegates couldn’t find much to say in unison.

The group set aside a previous pledge to avoid “all forms of protectionism” and signed up to an inoffensive statement about working “to strengthen the contribution of trade” instead.

Mnuchin made only one -- longish -- intervention during the main plenary debate in Baden-Baden, and when he did speak he read from a prepared statement, according to a person familiar with the matter, asking not to be identified as the session was private. Mnuchin’s German counterpart, Wolfgang Schaeuble, admitted later that the American “didn’t have a mandate to negotiate new or creative wordings” on trade policy.

Bilateral Talks

That’s not a huge problem for now, as the G-20 can bump the matter to a leaders’ summit in July. By then, the U.S. might have more deputies in place at the Treasury and Commerce departments, and have more to say.

G-20 delegates were pleased that a U.S. representative was in front of them, and paying attention. Mnuchin said he’d had 18 bilaterals and meetings on the sidelines.

One of those was with Chinese Finance Minister Xiao Jie, whose delegation led the defense of the existing rules and whose nation has been a focal point for U.S. claims of unfair trade. The two men agreed to make bilateral economic cooperation more effective and pragmatic, the official Xinhua News Agency reported.

“He performed very well,” Australian Treasurer Scott Morrison said in an interview with Bloomberg Television. “He’s getting around, he’s getting to know his colleagues, I think he sent some very positive messages in terms of engaging all the economies.”

Coming into the meeting, one issue that had been problematic in previous G-20s -- currency manipulation -- was this time uncontroversial, partly because Mnuchin hasn’t been in such a rush to label China a guilty party in that respect as his boss had been during the campaign.

Non-Binding

But the mostly genteel talks in the spa-town of Baden-Baden can’t hide the risk of a fundamental cleft opening up in economic policy. U.S. unilateralism threatens to clash with everyone else, including countries like China who feel, as massive beneficiaries, duty bound to defend the current trade setup.

Indeed, Mnuchin signaled that neither he nor the rest of the administration is willing to be bound by commitments that the international community has already made.

“This is my first G20,” he said at a press conference after the group published its final statement on Saturday. “What was in the past communique was not necessarily relevant from my standpoint."

G-20 finance chiefs were disgruntled at the outcome of the meeting, if not with Mnuchin himself. Schaeuble said the fudged compromise was “doesn’t get us very far,” and his Russian counterpart, Anton Siluanov, said the issue will “need additional discussion.” French Finance Minister Michel Sapin said he regrets that the talks “didn’t end in a satisfactory manner.”

Winners and Losers

So far, investors haven’t been much upset by the rhetoric from Trump and his officials, with the S&P 500 Index up around 10 percent since he was elected. Over the longer term, though, there will be a need for clarity over what the global trading system is going to look like if the U.S. is really going to reject the current one, according to Torsten Slok, chief international economist at Deutsche Bank AG in New York.

“Today’s existing world trading system, the WTO, has been the result of a long process to hammer out all the details,” Slok said by phone after the G-20 meeting concluded. “It remains unclear what the U.S. wants instead, but if you change the system you create winners and losers. We’re not even scratching the surface yet to figure out how that’s going to look.”

--With assistance from Alexander Weber Richard Bravo Rainer Buergin Saleha Mohsin Weixin Zha Josh Wingrove Raymond Colitt Birgit Jennen Olga Tanas Alessandro Speciale Svenja O'Donnell Toru Fujioka and Catherine Bosley

To contact the reporter on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net.

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow

©2017 Bloomberg L.P.

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