G20 ministers pledge more inclusive growth

Payoff will take time

CHENGDU, China, July 24, (RTRS): Global finance officials, jolted by growing anti-trade and economic nationalism movements behind Britain’s vote to leave the European Union and Donald Trump’s US presidential campaign, are intensifying pledges for more “inclusive” growth.

But some Group of 20 officials and analysts say this will be a long-term project.

Certainly, the benefits of these efforts are unlikely to be seen quickly enough to influence US voters in the November presidential election, where both Republican Trump and Democrat Hillary Clinton have declared their opposition to the 12-country Trans-Pacific Partnership free trade deal.

After a two-day meeting in Chengdu, China, G20 finance ministers and central bank governors prominently pledged to pursue policies that promote economic “inclusiveness” and preserve an open trading system, significantly strengthening previous statements on the subject.

“The benefits of growth need to be shared more broadly within and among countries to promote inclusiveness,” the G20 officials said in a communique issued on Sunday.

“We underscore the role of open trade policies and a strong and secure global trading system in promoting inclusive global economic growth, and we will make further efforts to revitalize global trade and lift investment,” the G20 said.

That is in stark contrast to Trump’s acceptance speech at the Republican National Convention last week, where he promised to be a voice for Americans who have been “ignored, neglected and abandoned.”

“The TPP will not only destroy our manufacturing, but it will make America subject to the rulings of foreign governments,” Trump said.

“I pledge to never sign any trade agreement that hurts our workers, or that diminishes our freedom and independence. Instead, I will make individual deals with individual countries.”

Agreement

Trump also has threatened punitive tariffs on imports from China and Mexico and says he will renegotiate the North American Free Trade Agreement despite 22 years of company supply-chain integration between the United States, Canada and Mexico.

And Clinton’s running mate, Senator Tim Kaine of Virginia, on Saturday declared his opposition to the TPP deal in its current form, just a week after making some positive comments about the deal’s “high standards”.

This puts him in line with Clinton, who says she wants to renegotiate TPP, and eliminates another potential “yes” vote should Congress attempt to ratify the deal later this year.

US Treasury Secretary Jack Lew said on Saturday the UK’s Brexit vote reinforced the need for policies that ensure “the benefits of growth do not just get into the bottom lines of business or investors, but also into working families and the middle class.”

The shift by the G20 is an acknowledgement by global economic stewards that there is a strong and fast-growing movement towards economic nationalism globally that threatens protectionism, said Paul Sracic, political science professor at Youngstown State University in Ohio’s Rust Belt.

“It’s a first step but it’s too little, too late,” Sracic said of the G20 statement in a phone interview.

“The next US administration, no matter which party, is not going to be as friendly to global economic relationships as the Obama administration has been. The politicians are going to follow the voters.”

David Lipton, the International Monetary Fund’s first deputy managing director, said while it would take time to turn around a “rising tide of populism”, G20 countries needed to act to ensure globalisation remained an engine of future growth.

“Can it be done quickly? Probably not, but on the other hand, if we get a good start, I think it will be more credible in showing that the system is worth maintaining and pursuing,” Lipton said.

“It’s right at the top of the agenda here at the G20,” Hammond said at the end of the two-day meeting of the Group of 20 leading economies in the Chinese city of Chengdu. “It’s a new factor affecting the global economic outlook and it has increased the uncertainty which the world economy faces.”

Britain was plunged into its biggest political crisis in decades by the June 23 Brexit vote and so far it has resisted calls from some other EU countries to trigger quickly the two-year process for negotiating its exit from the bloc.

Prime Minister Theresa May, who has been in her job for less than two weeks, traveled to Germany and France last week to explain why she needed time to come up with an exit strategy.

The EU’s top economic official, Pierre Moscovici, said the bloc understood that Britain should not be rushed but “at the same time...let’s not waste time, let’s not have too much uncertainty, let’s act and choose as swiftly as possible.”

Hammond told reporters on Sunday the two-year negotiating period, once launched, represented “quite a tight timescale” and Britain needed to go into it with clear objectives. “We have to do that before the start of the process because when we serve that notice, we need to hit the ground running,” he said.

But Hammond also showed he was aware of the need for some clarity on Brexit: “What will start to reduce uncertainty is when we are able to set out more clearly the kind of arrangement we envisage going forward with the European Union.”

“If our European Union partners respond to such a vision positively — obviously it will be subject to negotiation — so that there is a sense perhaps later this year that we are all on the same page in terms of where we expect to be going, I think that will send a reassuring signal to the business community and to markets,” Hammond said.

May has said she does not plan to launch the formal negotiation period this year. It remains to be seen if other EU countries would enter informal talks with Britain before the formal negotiations, something they have previously ruled out.

Financial markets have stabilised after the initial shock of the referendum result which saw the value of the pound plunge by more than 10 percent and trillions of dollars wiped off stock markets worldwide. But economists are expecting Britain to fall into a recession, according to a Reuters poll.

Hammond said he did not think that a survey of British businesses published on Friday, which showed the sharpest fall on record in a purchasing managers index, was a sign that the economy was in already in a recession.

“What it does is underscore the hit to confidence,” he said.

Hammond warned that Brexit-related volatility in markets would be a risk throughout the two-year negotiation period.

“We have to be ready as government, the Bank of England has to be ready as monetary authority, throughout that period to respond to any instability created by that uncertainty and to ensure that the economy continues to operate smoothly,” he said.

The BoE is expected to cut interest rates and possibly announce more stimulus measures on Aug. 4. Hammond has said he could ease fiscal policy in the autumn if more help is needed.