New rifts emerge as Trump administration rejects free trade statement at G-20 meeting

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New rifts emerge as Trump administration rejects free trade statement at G-20 meeting

By Damian Paletta
Updated

BADEN-BADEN, Germany - The Trump administration on Saturday rejected a statement from other leading economies that warned against the perils of trade protectionism, the latest sign of how the administration's more combative approach to diplomacy can create rifts with US allies and leave traditional partners in the dark about the direction of US policy.

Treasury Secretary Steve Mnuchin, appearing at a gathering of economic ministers and central bankers from the 20 largest economies, rebuffed multiple entreaties from German officials to include in the meeting's joint statement language stressing the importance of free trade and that it should be conducted in a "rules-based" manner, following existing standards and agreements.

US Treasury Secretary Steven Mnuchin and Treasurer Scott Morrison in Germany during the G20 meeting in Baden-Baden.

US Treasury Secretary Steven Mnuchin and Treasurer Scott Morrison in Germany during the G20 meeting in Baden-Baden.

By rejecting language that would have said the US was opposed to protectionism, the White House sent a clear signal that it would not accept existing trade norms and could pursue a more antagonistic approach with trading partners around the world. Such language had been considered ordinary and uncontroversial in recent meetings of the Group of 20.

"I understand what the President's desire is and his policies and I negotiated them from here, and we couldn't be happier with the outcome," Mr Mnuchin said on Saturday.

Concrete steps

Mr Trump made opposition to free trade a cornerstone of his presidential campaign and pulled the US out of a sweeping Asia trade deal shortly after taking office, but had not yet followed up with other concrete steps to revamp the terms of its economic relationship with the world. He had threatened tariffs and other measures to correct what he said were other countries' unfair advantages in their trade relationships with the US, mostly taking aim at China and Mexico.

For many years, the US has been the country rallying other nations to the cause of free trade and common language in the communiques that follow meetings of economic ministers and central banks. Several European officials and one former US official who had attended past G-20 meetings said it was the first time the US had blocked such an effort.

The move followed new strains in the US relationship with Britain and Germany, traditionally two of its most steadfast allies.

The White House on Friday cited an uncorroborated Fox News report to accuse a British spy agency of surveillance of him, an accusation the agency said was baseless.

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Then Mr Trump launched a pair of tweets on Saturday morning accusing Germany of failing to fulfil its obligations after several negative headlines about his meeting on Friday with German Chancellor Angela Merkel in Washington.

Accusatory tweets

"Despite what you have heard from the FAKE NEWS, I had a GREAT meeting with German Chancellor Angela Merkel," he said on Twitter. "Nevertheless, Germany owes vast sums of money to NATO & the United States must be paid more for the powerful, and very expensive, defense it provides to Germany!"

(Germany does not owe vast sums of money to NATO, the defence alliance. Member nations are expected to spend 2 per cent of their gross domestic product on defence spending, but Germany only spends 1.2 per cent. It's unclear what Trump is referring to when he says the US must be paid more for its defence of Germany, which hosts a major US Air Force base.)

German economic officials spoke on Saturday in Baden-Baden about the same time Mr Trump sent the accusatory tweets.

German Finance Minister Wolfgang Schauble said the US was at an "impasse" with others about what they should say on trade protectionism, so they decided to say nothing at all. He also accused the Trump administration of not having a firm view on what it was seeking in terms of a trade policy.

Struggled to reach concensus

Mr Schauble said the finance ministers struggled to reach a consensus on how to approach trade.

The Germans had tried to get Mr Mnuchin on board. Sensing opposition to the initial language from the Trump administration, German officials had watered it down several times but Mr Mnuchin resisted.

Finally, about 1pm on Saturday, Germany's top central banker Jens Weidmann told his colleagues that the efforts to reach an agreement on the trade talks had failed.

Mr Mnuchin then spoke up and asked if they could agree on more generic language that said the countries wanted to "strengthen the contribution of trade". Several other finance ministers balked, saying such watery language was meaningless.

Still, a version of Mr Mnuchin's proposal ended up in the final agreement, which contained just a brief generic reference: "We are working to strengthen the contribution of trade to our economies."

The new language was markedly different from last year's, when the finance ministers issued a joint statement that said: "We will resist all forms of protectionism."

Re-examine certain agreements

"We believe in free trade," Mr Mnuchin said at a media conference. "We are one of the largest markets in the world. We are one of the largest trading partners in the world. Trade has been good for us and good for other people. "Having said that, we want to re-examine certain agreements ... To the extent that agreements are old agreements and need to be renegotiated, we will consider that as well."

The G-20 first met during the George W. Bush administration, and its purpose is to try to get global agreement on common issues that face each of the countries, such as trade, taxes, financial regulation and national security.

Global ramifications

Joint statements issued after G-20 meetings are difficult to finalise and are only as meaningful as the countries want them to be. They aren't formal treaties, but they do signal if there is consensus. Many world leaders are trying to determine how Mr Trump's "America First" mantra will affect existing and future trade agreements, which dictate how goods and services are imported and exported around the world. The US economy is the world's largest, and changes to the way it buys and sells goods will have global ramifications.

The White House has said it thinks existing US trade deals are unfair to US workers because it allows countries to lure away US jobs and send their goods to the US at unfairly low prices. In addition to scrapping the Asian trade deal, Mr Trump has also said he will renegotiate – or scrap – the North American Free Trade Agreement.

Critics of this approach have said it can isolate the US economy, make goods more expensive for Americans, and hurt US companies that rely on exporting their goods around the world.

The angst about Mr Trump's approach quickly became the backdrop at the Baden-Baden meeting, and many foreign officials came seeking more clarity from Mr Mnuchin, whom most had never met. Mr Mnuchin had spent his career in part at Goldman Sachs, starting a hedge fund and working as a Hollywood producer. They wanted to know if he would veer from Mr Trump on some of the economic nationalism they had heard coming from the White House.

He wouldn't, they quickly learnt.

Mr Mnuchin quickly became the "centre of attention", Canadian Finance Minister William Morneau said. Many sought one-on-one meetings with Mr Mnuchin to explain their position and hear his views. The trade language in the joint statement served as a test to see how dug in Mr Mnuchin – and ultimately Mr Trump – was willing to be on trade.

Still, Mr Mnuchin agreed to numerous meetings as he said he wanted to develop more relationships with his foreign counterparts. He met with top officials from France, South Korea, Japan, China, Saudi Arabia, the European Central Bank, Britain, Germany and Argentina, among others. His first international trip was a blizzard of bilateral discussions, with everyone trying to size up the new Treasury Secretary.

Willingness to listen

Despite the reservations about a variety of Mr Trump's positions, numerous officials said they were impressed with Mr Mnuchin's presentation and command of issues. So far, he was one of the only members of Trump's cabinet who had sought to develop relationships with other foreign leaders. They still didn't know if they would be able to influence his thinking, but they felt he had a willingness to listen, several G-20 attendees said.

"To a person, they have said they have been pleased with the way he is coming at issues," Mr Morneau said. "He is very constructive and talking about good relationships with all of his international counterparts."

Two European officials described Mr Mnuchin as friendly but "tough". They also said the US delegation at the G-20 was routinely checking back with its counterparts in Washington on certain issues, leading some Europeans to wonder with whom they were negotiating, Mr Mnuchin or Mr Trump. But one of the European officials said this was not uncommon for a new administration, which was still formalising its viewpoint on an array of complicated matters.

The G-20 finance ministers' meeting is the precursor to a gathering of the G-20 heads of state this summer in Hamburg. Many expect the discussions on trade will only intensify by then, but now they know where the US stands.

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