Count IMF Managing Director Christine Lagarde among those who think it’s probably a bad idea to go too much further down the road towards an all-out global trade war.
Trade and protectionism are obviously at the top of the agenda at the G-20 meeting in Buenos Aires, and Steve Mnuchin has the misfortune of representing the Trump administration in what amounts to a lion’s den.
On Saturday morning, Mnuchin sought to play down fears that Donald Trump’s attacks on Jerome Powell’s Fed are the first steps towards the White House commandeering the central bank on the way to instituting Erdogan-omics (“with American characteristics”).
The President’s Friday tweets about currency “manipulation” on the part of China and European Union and the extent to which hawkish Fed policy erodes America’s competitive advantage in the trade war and waters down the effect of the tariffs didn’t do anything to allay fears.
To be sure, the stakes are high. The following chart from Goldman shows you where things stand as of now and where things could eventually end up if Trump doesn’t stop.
Every bank on Wall Street has been at pains to try and estimate the effect of an all-out trade war on global growth and while the mechanical impact is expected to be somewhat benign as long as things don’t spiral too far out of control, BNP recently suggested that the worst case scenario would result in “a global recession.”
On Saturday, at a joint presser with Argentine Treasury Minister Nicolas Dujovne, Lagarde previewed a report she plans to present to finance ministers that details the likely impact of the protectionist measures that have already been realized. Here’s what she said:
It certainly indicates the impact that it could have on GDP which in the worst case scenario under current measures is in the range of 0.5 pct of GDP on a global basis.
As Reuters notes, Mnuchin will probably attempt to marshal support for a unified front against what the U.S. has variously described as “cheating” from China, but the fact that Trump has targeted Canada and the European Union (calling the latter a “foe” of the U.S. on trade), doesn’t bode well for the prospects of cooperation.
German Finance Minister Olaf Scholz said the following:
I don’t expect tangible progress to be made at this meeting.
Kuroda chimed in with this:
Trade protectionism benefits no one involved.
Ever the optimist, the BoJ Governor said that in the end, he “thinks restraint will eventually take hold.”
Here’s hoping, Kuroda-san. Here’s hoping.
Raiding the national pension, militarism, decades of structural, self-induced decline, right-wing populism, soft fascism, loss of Central Bank independence. I guess we are all Argentina now.
Yep…………………