World Economy

G20 Should Reduce Imbalances

A strong commitment to rules-oriented trading system was “vital” and protectionist measures as well as national policies that distort trade and investment
File photo of G20 summit in Hangzhou, Zhejiang Province, China.File photo of G20 summit in Hangzhou, Zhejiang Province, China.

The International Monetary Fund called on the Group of 20 major economies to work together to preserve the benefits of trade and avoid protectionism, while also urging them to reduce external imbalances and halt policies that distort global trade.

Under pressure from rising protectionist sentiment in many advanced economies, including the United States, the IMF said that international cooperation was needed to maintain trade as an engine of growth that has lifted millions out of poverty worldwide, reported.

In a “surveillance note” outlining its view of prospects and risks to the global economy issued ahead of a G20 finance ministers meeting this week in Baden-Baden, Germany, the IMF appeared to try to balance stronger demands for fairer trade with its traditional calls for more globalization.

It said those countries with trade and current account surpluses needed to work with deficit countries to reduce these imbalances. A strong commitment to rules-oriented trading system was “vital” and protectionist measures as well as national policies that distort trade and investment.

“Above all, we should collectively avoid self-inflicted injuries,” IMF Managing Director Christine Lagarde said in an accompanying blog post. “This requires steering clear of policies that would seriously undermine trade, migration, capital flows, and the sharing of technologies across borders. Such measures would hurt the productivity, incomes, and living standards of all citizens.”

 Concerns Despite Growth

Despite the IMF’s concern over reversions to nationalist economic policies, the IMF said that the global economic outlook was improving, thanks in part to an upturn in global manufacturing and trade flows.

Growth prospects have improved in Britain, Europe and Japan in recent months, while expectations for expansionary fiscal policy from the Trump administration, including tax cuts and infrastructure spending, were improving prospects in the United States. Recent indicators of business and consumer confidence and manufacturing have strengthened, the IMF said.

The note did not change the IMF’s latest global growth forecasts issued in January of 3.4% for 2017 and 3.6% for 2018 compared to 3.1% last year.

But the IMF’s outlook assumes there is no major disruption in trade that could be brought about by protectionist policies. It also assumes that China’s transition from an investment and export-driven economy to one driven by consumer demand continues without a major downturn.

But protectionism and China represent significant risks to the IMF’s outlook, as does the potential for a much faster path of Federal Reserve interest rate hikes, which could prompt disruptive capital outflows from emerging markets.

The IMF also reiterated its call for G20 countries to use available tools to boost demand and growth. But for countries that are nearing full capacity, such as the United States and Germany, it said stimulative policies should be focused on improving productivity and expanding the workforce, such as investments in high quality infrastructure, technology advancement, public education and child care.


Officials in Baden-Baden may take the view that a so-called border tax on imports as considered by the Trump administration runs counter to the G-20 pledge to “avoid all forms of protectionism”. In Washington, German Chancellor Angela Merkel is said to be planning to tell the US president on Friday that such a policy would prompt retaliatory measures, including higher tariffs for American companies, according to Der Spiegel magazine.

And even though China’s trade policy is still being identified as a “problem”, Premier Li Keqiang on Wednesday played down the tension between the world’s two largest economies.

“We don’t want to see a trade war,” Li said at a press conference in Beijing after the close of the annual National People’s Congress.

Meanwhile, European Union finance ministers will tell a G20 meeting this week that they will resist protectionism and that regulation introduced after the 2008 financial crisis must be kept in place.

A document prepared by the EU ministers, which appears aimed at the United States, sets out the position of all European delegations to the G20 gathering of ministers and central bankers in Baden-Baden in Germany on March 17-18.


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