Until now, Wall Street investors and foreign leaders had given Donald Trump’s anti-trade views the benefit of the doubt, dismissing some of his louder threats to rip up global commercial agreements as mere bluster.
That perception changed significantly this weekend, when Trump’s Treasury Secretary Steven Mnuchin, seen as among the more moderate members of the administration, held his ground on weakening the Group of 20 nations’ long-standing commitment to free trade.
During a meeting of financial officials from the 20 biggest world economies, Mnuchin defended the president’s anti-trade agenda with sufficient gusto to force a significant change in the language of the G20’s communique.
This year’s statement says only that countries “are working to strengthen the contribution of trade” to their economies, a watering down of last year’s commitment to combat “all forms” of protectionism.
There are reports that an intervention led by Australian treasurer Scott Morrison, with support from his Canadian counterpart, helped avoid the final communique being watered down even further.
Initially there was no reference to trade whatsoever in the document however Morrison reportedly spearheaded the inclusion of a form of words that was accepted the ministers present.
Already, markets are being “impacted by the somewhat frosty summit between US President Trump and his German counterpart Angela Merkel while Trump’s trade Secretary Mnuchin failed to allay fears of rising US protectionism at the G20 meeting in Merkel’s homeland,” said Henry Croft, research analyst at Accendo Markets, in a research note to clients after the summit.
Indeed, Trump’s gaffe-ridden meeting with Merkel came on the heels of unfounded attacks on Germany’s economic policies.
Almost immediately, Reuters reported China is already looking for ways to retaliate against any potential US tariffs. This could be the quiet opening salvo to a trade war that many investors have feared but hoped could be avoided.
“Risk appetite absent after the G20 decided to drop a pledge to avoid trade protectionism,” wrote FXTM Research Analyst Lukman Otunuga in his research.
The G20’s shift comes on the heels of strong protectionist hints from the administration, which has already jettisoned a hard-dough Trans-Pacific Partnership agreement between 12 nations, is threatening to rip up the North America Free Trade Agreement, and even potentially is considering ignoring rulings from the 164-member World Trade Organisation.