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Last week in AEIdeas, I argued that the Economic Nationalists in the Trump administration will win more battles than they lose. Well, over the past several days, they have won an important one, and have come out on top at the G20 meeting of Finance Ministers.
In what seemed to be a tightly controlled and scripted mandate, US Treasury Secretary Steven Mnuchin toed the line on an “America First” agenda—and “sent a clear signal that (the White House) would not accept existing trade norms and would pursue a more antagonistic approach with trading partners around the world.” Both the message and the messenger who conveyed it are significant.
Before recounting the outcome of the G20 meeting in Baden-Baden, first the context in terms of the contending factions within the Trump White House. My earlier blog had been based in part on a Financial Times story, “White House civil war breaks out over trade” which claimed that war set Peter Navarro, head of the President’s Trade Policy Council, against Gary Cohn, head of the President’s National Economic Council. The very brief FT article alluded to — but did not analyze — a larger conflict between the Wall Street moderates and the Economic Nationalists. On Sunday in a lengthy analysis, Washington Post reporters Philip Rucker and Robert Costa expanded both the narrative and the participants in a “class war” between the “outspoken, worldly and polished coterie” of Manhattan (and Goldman Sachs) business figures, derisively labeled “the Democrats,” by their opponents, and the “Republican populists who are driving much of Trump’s nationalist agenda.” Besides Cohn, the “coterie” consists of his aide Dina Powell, the president’s son-in-law Jared Kushner—and no doubt Secretary of the Treasury Mnuchin (all with attendant staff).
The article also identified an “unexpected” alliance on many issues between Reince Priebus, the president’s chief of staff, and Steven Bannon, the ideological godfather of White House populists. Outside the White House, Secretary of Commerce Wilbur Ross is described as having a foot in both camps. (On this, I dissent: as I noted in an earlier blog, on trade issues so far there is no distance between Ross and the Navarro/Bannon economic nationalists, whatever his personal relations with other in the White House.)
There are lots of details and vignettes in the piece, not least because all sides spoke freely (and anonymously) in order to get their licks in. But for this post, two points are important: one, the reporters opine that “For the most part thus far the ideologues (populists) are winning.” But they also note that down the road, the New York and business moderates may prevail. The president’s personal instincts are clearly with the economic nationalists, but he also admires and likes to have around him highly successful, rich corporate leaders who are deeply antagonistic to the Bannon/Navarro brand of populism.
That bring us to the G20 meeting — clearly an example of a short-term but highly symbolic victory for the White House faction that privileges “fair” trade over free trade.
The G20 Finance Ministers meeting was the first important international economic gathering since the advent of the Trump presidency, and the US Treasury Secretary is always deemed a central figure in any administration and looked to as a definitive spokesman for the president. In this case, Secretary Mnuchin was given a narrow script from which to read and clearly instructed not to deviate from the novel US talking points. According to leaked accounts of his statement at the closed meetings, he reiterated the Trump campaign complaint that current trade rules are unfair to the United States, setting the stage for the US to follow through on the president’s vow to review and renegotiated its existing bilateral and multilateral trade agreements.
Later when it came to writing a final communique, the US broke a decade-old commitment (which it had championed) to oppose protectionism. The specific language would have committed G20 nations to “resist all forms of protectionism.” In defense of his stance, Mnuchin argued that the earlier language was “not necessarily relevant from my standpoint” and he went on to claim that existing trade agreements were not enforced and that the US would henceforth aggressively defend its rights in the pursuit of “free and fair trade.” In this, the Treasury Secretary faithfully reflected his boss, who a day earlier had bluntly told German Chancellor Angela Merkel: “The United States has been treated very, very unfairly over the years. And that’s going to stop… I am a free trader, but I am also a fair trader.”
The Trump administration seems to have no qualms about ceding international leadership on trade and investment liberalization to other nations— most notably the Chinese who have suddenly (and hypocritically) emerged as the champions of globalization and the multilateral trading system.
In the end, German Finance Minister Wolfgang Schauble admitted the group was at an “impasse” on trade. The US did allow a face saving oblique statement on trade: “We are working to strengthen the contribution of trade to our economies.”
So what are the takeaways from all of this? Clearly, as noted, in its first foray into international economic policymaking, the Trump administration has demonstrated that it will not be deterred from “breaking the crockery” in the international economic arena, as well as dramatically revamping traditional US policy toward trade liberalization. In this, for the moment, the Economic Nationalists have clearly scored a victory.
Further, the Trump administration seems to have no qualms about ceding international leadership on trade and investment liberalization to other nations— most notably the Chinese who have suddenly (and hypocritically) emerged as the champions of globalization and the multilateral trading system. Beyond China, the Trump administration’s performance at the G20 has left our allies—particularly in Europe—confused and dismayed. Despite the brushoff she received in Washington last week, Chancellor Merkel forlornly clings to the possibility of better results at the G7 in May. Good luck with that.
Finally, what recent events have foretold is that if the White House “Wall Street moderates” on international trade policy are to prevail, they will have to continually beat back the president’s deeply held resentment of many aspects of globalization; it will always be a test of rational economic policy vs. highly satisfying emotional revenge against an “unfair” trading world.
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