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Central Bank ‘Heroes’ Fight the Trade War: Takeaways From G-20

Central Bank ‘Heroes’ Fight the Trade War: Takeaways From G-20

(Bloomberg) -- Trade tensions and slowing economic growth dominated a gathering of global finance chiefs in the Japanese port city of Fukuoka.

That’s put the onus on central banks to act, even amid concerns their monetary policy arsenal has been worn thin.

"Central banks are heroes," OECD Secretary General Angel Gurria told Bloomberg Television in an interview during the meetings. “The question is: how much armory do they still have, how many bullets, particularly silver bullets?”

In the communique issued at the end of the gathering, officials warned that trade tensions have intensified, posing the biggest risk to the global economy. That leaves the ball in the court of U.S. President Donald Trump and China’s Xi Jinping, who are expected to meet at the G-20 leaders summit in Osaka later this month.

Here are some of the key things we learned:

Trade

Tensions over rising protectionism was the biggest talking point at the meetings. Officials wrangled over wording for a final communique on how to describe their concerns for world growth. While they flagged that it appears to be stabilizing, they also warned that the risks are tilted to the downside.

"Most importantly, trade and geopolitical tensions have intensified. We will continue to address these risks, and stand ready to take further action," according to the statement.

Central Bank ‘Heroes’ Fight the Trade War: Takeaways From G-20

The gathering also marked the first meeting of top U.S. and Chinese officials since negotiations between both governments for a trade agreement collapsed last month. Treasury Secretary Steven Mnuchin wrote on Twitter that his talks with People’s Bank of China Governor Yi Gang were constructive and candid.

Mexico

Trump’s reversal of plans for new tariffs on Mexico came as the G-20 meetings got underway. Officials were quick to welcome the development. Bank of Japan Governor Haruhiko Kuroda said it was good news not just for the economies of Mexico and the U.S., but also the world.

Indonesia Finance Minister Sri Mulyani Indrawati described the Mexico news as "very plus plus" and said it may signal that the U.S. and China can also reach an agreement in their trade dispute. "We do hope this recognition is going to create a more reasonable policy direction," Indrawati said in an interview with Bloomberg Television.

Currencies

The G-20 reaffirmed a commitment to refrain from devaluing currencies for competitive purposes. Mnuchin said currency policy can be an important tool to address trade imbalances, and that a recent proposal to tariff countries that engage in competitive devaluation doesn’t represent a preference for a weak dollar.

Central Bank ‘Heroes’ Fight the Trade War: Takeaways From G-20

A Commerce Department plan would allow the U.S. to apply countervailing tariffs on nations seen to be actively driving down their currencies to boost exports.

Rebutting the view that such a regulation would signal the Trump administration’s shift toward a weak dollar policy, Mnuchin in an interview described it as “another important tool in the toolkit to make sure that we have fair and balanced trade.”

Tax

The rapid rise of the digital economy -- particularly in the G-20 host region -- had policy makers in debate about where the taxman will fit in.

France’s Finance Minister Bruno Le Maire said there has to be an international solution, including on how to measure digital activities and the sale, exchange and use of data. He said G-7 countries will seek a compromise on digital taxation at their July gathering in France, which could provide a template for the G-20.

The finance leaders were quicker to cheer lead ongoing efforts to crack down on international tax evasion, with Argentina’s Economy Minister Nicolas Dujovne calling it a “success story” amid a panoply of G-20 challenges, and Indian Finance Minister Nirmala Sitharaman touting it as a “case study” in effective multilateralism.

Debt

Japanese Finance Minister Taro Aso has pushed debt as a top agenda item in the lead-up to these meetings. Related issues around transparency, lending and infrastructure project viability had their time in the spotlight.

The G-20 also provided a platform for the International Institute of Finance to push its vision for greater disclosure on borrowing in order to fight corruption, improve financial sustainability, limit market shocks and even improve credit ratings. The G-20 communique reflected an endorsement of the IIF’s plan.

While signaling broad G-20 consensus on debt transparency on Saturday, German Finance Minister Olaf Scholz added that lender countries should be ready to accept the rules set out by the Paris Club agreement. He called out China by name, keeping heat on the world’s No. 2 economy for how its infrastructure projects have impacted lower-income host countries -- an issue that Japanese officials had emphasized in the lead-up to the meetings.

Aging

How to cope with aging populations was another talking point. Officials discussed the need to roll out a suite of policy responses including fiscal, monetary, financial and structural.

Measures to boost productivity and growth by investing in skills and getting more women into the work force were among the ideas that were weighed.

Carmakers

Ructions in the global car industry also surfaced at the G-20, with Le Maire indicating that France is open to cutting its 15% stake in Renault SA to mend its partnership with Nissan Motor Co. But it isn’t looking to do it anytime soon, he told reporters.

The comments follow the collapse of discussions between Fiat and Renault to form a global car manufacturing powerhouse. The talks ended abruptly recently when Fiat withdrew its offer after France asked for more time to seal the deal as it tried to get the backing of Nissan.

To contact the reporters on this story: Enda Curran in Hong Kong at ecurran8@bloomberg.net;Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Brett Miller

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