The world’s financial leaders will renounce competitive devaluations and warn against exchange rate volatility, but they have not yet found a common stance on trade and protectionism, a draft statement of their meeting in Germany showed on Friday. The finance ministers and central bank governors of the world’s 20 largest economies may struggle to present a united front on protectionism after the new administration of US President Donald Trump began considering imposing a border tax that would make imports more expensive.
A G20 draft communique, which may still change and is to be published only on Saturday, also said that monetary policy will keep supporting growth and price stability but cannot alone lead to balanced economic growth. “We reiterate that excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability,” the draft communique, seen by Reuters, said.
“We will consult closely on exchange markets. We reaffirm our previous exchange rate commitments including that we will refrain from competitive devaluations and we will not target exchange rates for competitive purposes,” it said. These sentences were missing from the earliest draft communique, but have been re-inserted on the insistence of several G20 governments and institutions so as not to alarm markets that a policy change was under way.
“Monetary policy will continue to support economic activity and ensure price stability, consistent with central banks’ mandate, but monetary policy alone cannot lead to balanced growth,” it said, also repeating the G20 stance from last year. But the draft, for now, makes no reference to trade and protectionism issues, breaking with a decade-old tradition of G20 communiques which have, over the years, used various formulations to endorse free trade and reject protectionism. US Treasury Secretary Steven Mnuchin said on Thursday in Berlin that the Trump administration has no desire to get into trade wars, but certain trade relationships need to be re-examined to make them fairer for US workers.
German Finance Minister Wolfgang Schaeuble, whose country holds the rotating presidency of the G20 this year, told Reuters the protectionist US stance could force the G20 to leave out trade from the statement altogether. “There are differing views on this subject,” Schaeuble said, pointing to “America First” comments by US President Donald Trump and other senior US government officials. “It’s possible that we explicitly exclude the topic of trade in Baden-Baden and say that can only be resolved at the summit of the state and government leaders,” he said.