As I have written in the past, we can make too much of the significance of the G-20 (or earlier G-8) process and leader meetings. It is not, as some commentators have effusively labeled it, the "committee that rules the world." Still, the annual gatherings of the heads of state of 20 developed and developing nations holds powerful symbolic importance and influence. It does set the tone for international economic relations in a given year. And it can signal both future areas of international cooperation – and conflict.
This year, while German Chancellor Angela Merkel was the (beleaguered) host for the Hamburg G-20, it was President Donald Trump whose presence dominated the headlines. While there is much to analyze from the summit, trade is the subject here. Trade and climate (the Paris agreement, specifically) were juxtaposed from the outset. Given the tensions and turmoil both within the G-20 sessions, as well as outside on the streets of Hamburg, clearly Merkel decided that she did not want to risk rupture by isolating Trump on both issues. Thus, while the G-20 members threw down the gauntlet on the climate issue – with the G2-0 adopting a 19-1 stance that Paris was "irreversible," with the U.S. as lone dissenter – on trade, Merkel opted to push for compromise.
The result may have been a palliative for G-20 member relations, but make no mistake: The "compromise" on trade represents a damaging retreat from the G-20's clear and simply stated stand against protection and support for a rules-based multilateral trading system. It was on trade that the Trump's Sherpas dug in their heels and were most tenacious – with substantial results. Merkel ruefully acknowledged this doggedness when she lamented that trade talk is still difficult as "every word is weighed there."
In contrast, just note the brief, emphatic statement in the 2016 G-20 statement on trade: "We reiterate our opposition to protectionism on trade and investment in all its forms." The statement went on to commit to a "standstill" on protectionist measures until the end of 2018, and supported the work of the World Trade Organization, the Organization for Economic Cooperation and Development and the U.N. Conference on Trade and Development in monitoring protectionism.
Now jump to this year's statement – in many respects convoluted and even incoherent because each phrase was separately negotiated: "We will keep markets open, noting the importance of reciprocal and mutually advantageous trade and investment frameworks and the principle of non-discrimination, and continue to fight protectionism, including all unfair trade practices and recognize the role of legitimate trade defense instruments in this regard. We will strive to secure a level playing field, in particular promoting a favorable environment for trade and investment in this regard."
In addition, on institutional issues: "We underline the crucial role of the rules-based international trading system. We note the importance of bilateral, regional and plurilateral agreements being open, transparent, inclusive and WTO-consistent, and commit to working to ensure they complement the multilateral trade agreements …To further improve the functioning of the WTO, we will cooperate to ensure the effective and timely enforcement of trade rules and commitments as well as improve its negotiating, monitoring and dispute settlement system."
Without getting too deeply into the weeds, here are some of the important changes stemming often from the "code words" introduced into this year's G-20 trade statement.
Reciprocity. Trump's trade advisers have consistently pushed for this word and concept in all fora. This is code for the misguided concept that trade deals should result in "balanced trade." That is, trade exports and imports being equal, or resulting in a trade surplus for the U.S.
"... fight protectionism, including all unfair trade practices and recognize the role of legitimate trade defense instruments." Besides the strange syntax, these phrases hark back to Trump's persistent themes during the campaign that U.S. trading partners practiced "unfair" trade tactics, and that "bad trade deals" had produced disastrous consequences for the U.S. economy and workers. The president underscored this point on Sunday after the summit when he tweeted that it was a "great success" and that he had explained to the leaders that the "U.S. musts fix the many bad trade deals it has made."
The reference to legitimate trade defenses refers specifically to anti-dumping rules, which, though recognized in the WTO, are widely perceived to have been abused and have become merely instruments of protection for industries and companies that can't compete. This phrase is supplemented by the pledge to "ensure a level playing field," another code construction for protectionist interventions. Together, the G-20 endorsement of an open season on anti-dumping and other measures to "level the playing field" is a major step back from earlier commitments to more open markets and trade.
The WTO. Nowhere in this year's G-20 trade statement is there a strong, direct endorsement of the WTO. In contrast, in previous years, the G-20 has commended the WTO's "central role in today's global trade." According to press reports, U.S. Sherpas caviled at an explicit acknowledgement of the WTO's role, allowing only a general affirmation of the "crucial role of the international trading system." Further, in a sideswipe at the WTO, the U.S. insisted on a sentence committing to "further improve the functioning of the WTO" through presumed reform of trade enforcement rules and the dispute settlement system." The administration's new U.S. Trade Representative Robert Lighthizer has been a strong critic of the WTO dispute settlement process – most particularly on the basis of anti-dumping decisions that have gone against the U.S.
So in the end, though there was some traditional open market language in the summit statement – "continue to fight protectionism ... promoting a favorable environment for trade and investment" – the overall result signaled a significant weakening of the G-20 commitment to trade liberalization. From a free trader's perspective, given the outcome, it would have been far better had Merkel boldly decided to challenge Trump directly on trade as well as climate change. A second 19-1 rebuff would have left the world trading system much better positioned to face future challenges to open markets and freer trade flows.
Claude Barfield is a resident scholar in economic policy studies at the American Enterprise Institute.
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