Australia has backed growing calls for a revamp of global trade rules to defuse an escalating tariff war between the US and Europe and China, with Treasurer Scott Morrison calling for a broader review “of how the system has failed”.
During two days of intense discussions in Buenos Aires between Group of 20 finance ministers, Mr Morrison hit out at World Trade Organisation rules he said have been “unable to resolve the things that have led to these current tensions”.
Suggesting the WTO system was “built for a different time”, Mr Morrison told The Australian Financial Review that the current trade war “at the very least should spark a look at how those rules work and how they’re operating“.
The Treasurer’s remarks are likely to be applauded by US President Donald Trump, who has reportedly threatened to quit the WTO, as well as France, which Mr Morrison said lobbied his G20 counterparts for a “pretty serious” review of how the Geneva-based trade adjudicator operates.
While there are no specifics on what changes are being mooted, they are likely directed at many of the key complaints that have been levelled – primarily by the US – against the WTO.
These include the fact that its creators never imagined the ascension of a command-control economy on the scale of China, with its huge state-owned enterprises; concerns around the protracted nature of dispute settlements, which can drag on for years and devastate affected industries and companies even if the defendant country eventually wins; as well as failure to address intellectual property theft.
Speaking to the Financial Review on Monday before boarding a flight back to Australia, Mr Morrison said France was the most “forward leaning on that sort of change”.
While the Trump administration’s decision to impose tariffs on China was “quite unconventional”, trying to resolve the escalating trade dispute “in isolation” was unlikely to succeed.
“It needs to be looked at in the broader context of how the system has failed to deal with these long-standing issues, and that’s something we discussed with the Americans,” he said.
With trade tensions dominating the weekend’s G20 talks, Mr Morrison met with US Treasury Secretary Steven Mnuchin, as well as his British and Canadian counterparts.
Mr Morrison said there was a concerted effort to take the heat out of the trade dispute, but that no one was seeking to ignore the potential perils of a full-blown trade war.
“Yes, this carries significant risk for the global economy – it’s not of the order that some speculate … it’s still serious enough to warrant our serious attention – but let’s look at this plainly and understand what’s happening.”
The Treasurer told the G20 forum directly that it was important members – who account for more than 80 per cent of the global economy – avoid scaring “the hell out of people”.
“It is very alarming to our citizens,” Mr Morrison told the group, according to a transcript released by his office.
“They look to meetings like this hoping that they will see there is a way forward that doesn’t have that sort of apocalyptic end that they fear will happen as a result of these sorts of trade tensions being escalated.”
The meeting included a push by the US to woo Europe and Japan with trade deals to increase leverage against China. French Finance Minister Bruno Le Maire retorted that Europe wouldn’t consider starting trade talks unless Mr Trump first withdraws tariffs on steel and aluminium imports and drops a car tariff threat.
“We refuse to negotiate with a gun to our head,” Mr Le Maire said.
Mr Mnuchin renewed Mr Trump’s proposal that G7 allies drop trade barriers between them. “If Europe believes in free trade, we’re ready to sign a free trade agreement,” Mr Mnuchin said, adding that such a deal would require the elimination of tariffs, non-tariff barriers and subsidies. “It has to be all three issues.”
Mr Morrison said the US delivered its most clear statement since the tariff war erupted last month about the Trump administration’s ultimate goal, which is to create a more open global trading system.
“This isn’t some set of actions for a protectionist cause – that’s not where they are seeking to land,” he said.
“They’ve done important work to try and clarify and restate what their ultimate purpose is.
“I’ve been talking about what they’ve been doing as quite unconventional, and it is – but in fairness, the conventional path over the last decade hasn’t really led to a resolution of the issues they’ve been raising under several administrations.”
Cast a shadow
Mr Trump cast a shadow over the G20 talks when he declared on Friday that he was ready to impose tariffs on all $US500 billion ($674 billion) of imported goods from China into the US, unsettling already jittery financial markets.
The benchmark S&P/ASX200 index fell 0.9 per cent on Monday to 6231.10.
Mr Morrison downplayed Friday’s threat, telling the Financial Review that “it hasn’t happened”.
“As this unfolds [countries] need to be conscious of building off-ramps to take back, or walk back, anything that occurs in the meantime, because that’s not where they want to end up.”
Asked what Mr Morrison meant by an “off-ramp”, he said: “Well, it just means that you … don’t leave yourself without an option to walk things back; that there is an ability to take the discussions off the trajectory of protectionism, and that this thing doesn’t get concreted in.”
Mr Morrison said his remarks were directed at all sides of the burgeoning trade war, before adding that China had been “very measured” in its responses to US tariffs, which started last month on $US34 billion of goods, with another $200 billion added this month.
China is being “very careful – and I think that demonstrates a sensitivity and willingness to not see this unnecessarily escalate – and that’s to be commended as well”, he said.
While the effect of the trade war was likely to be negative, Mr Morrison said modelling by the International Monetary Fund that shows it would wipe 0.5 percentage points off global growth indicates it wouldn’t be “as bad as some suggest”.
Most frustrating was that the dispute was happening at a time when the global economy has improved, with unemployment at decade lows, he said.
“The only big significant risks to the global economy at the moment are political. They’re not financial, and they’re not economic.”
He said there were signs at the meeting that the remedy to the global trade war, which has pitched the US against many of its oldest allies including Mexico and Canada, would begin with a reworking of the North American Free Trade Association (NAFTA).
“I think the first cab off the rank will be NAFTA,” he said. “The impression I got, particularly when talking to people here, is that there’s been some good breakthroughs with both Mexico and Canada.
“So you would hope they’re able to resolve something there before the end of the year.”
Brexit was another source of debate at the G20, with Mr Morrison holding a meeting with his British and Canadian counterparts, something that has happened at previous gatherings.
“That’s proving to be a very useful little forum,” he said. “We share a lot of interests and we have a lot of different connections to the other members and it’s a good place to swap notes.”
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.