To be sure, expectations for the G-20 meeting in Buenos Aires were already low prior to Trump’s attacks on the Fed, but his CNBC interview and subsequent tweets that seemed to tip a willingness on the part of the White House to pressure Jerome Powell into adopting a more dovish approach in the interest of weakening the dollar, lowered the bar even further.
Steve Mnuchin did his best to assuage fears of an imminent encroachment on Fed independence, but he’s the wrong messenger. The Treasury Secretary’s own comments about the benefits to the U.S. of a weaker greenback (delivered ad hoc in Davos back in January) are still fresh in the minds of his global counterparts and even if everyone was inclined to give him a pass, it wouldn’t matter because at this point, it’s abundantly clear that Mnuchin has little sway in this administration. After all, it was Mnuchin who went on national television and declared the trade war with China “on hold” only to be humiliated days later after Trump, likely at the behest of Peter Navarro, reversed course on the way to refusing to extend waivers on metals tariffs to America’s European allies and subsequently moving ahead with duties on $34 billion in Chinese goods.
The official communiqué from the G-20 was full of nebulous promises to guard against bad outcomes, but again, it’s set against a backdrop where the U.S.-led protectionist push makes it impossible for anyone to say anything definitively.
Comments from Bruno Le Maire, the French finance minister, underscored just how incredulous the rest of the world is with Trump’s ongoing belligerence:
[The EU] will not negotiate with a gun to our head. I call on the US to return to reason.
The statement also echoed the concerns of IMF Managing Director Christine Lagarde, who has variously warned that global growth may have peaked and that trade frictions threaten to exacerbate any subsequent deceleration. Here’s a passage from the communiqué (embedded in full below):
Global economic growth remains robust and unemployment is at a decade low. However, growth has been less synchronised recently, and downside risks over the short and medium term have increased. These include rising financial vulnerabilities, heightened trade and geopolitical tensions, global imbalances, inequality and structurally weak growth, particularly in some advanced economies. We will continue to monitor risks, take action to mitigate them and respond if they materialise. Although many emerging market economies are now better prepared to adjust to changing external conditions, they still face challenges including market volatility and reversal of capital flows.
There was a half-hearted effort to claim that FX markets won’t become a battle ground. “We reaffirm our exchange rate commitments made in March,” the statement reads.
But as Bloomberg notes, there was little in the way of discussion with regard to the threat of competitive devaluations:
Prospects of an intense debate on currencies had dramatically increased on Friday when Trump accused the EU and China of manipulating their foreign exchange rates to obtain trade benefits and said a strong dollar and rising Fed interest rates were undermining U.S. competitiveness [but] currency issue didn’t come up during Saturday discussions, according to Canadian Finance Minister Bill Morneau.
Remember, the fact that FX is now in focus means that central banks may be less willing to use the crisis fighting tools at their disposal in the event of a downturn for fear of being labeled a currency manipulator.
“Monetary easing itself poses a risk of destabilising the global financial markets by rekindling memories of currency wars”, BNP warned last week.
More broadly, the dour mood stems in part from the creeping suspicion that Donald Trump is having more than a little success when it comes to undermining the legitimacy and efficaciousness of multilateral institutions.
That’s a dangerous road to go down and with each passing summit, it’s becoming evident that policymakers the world over have simply resigned themselves to the idea that there’s no light at the end of this tunnel – at least until 2020 or until Robert Mueller finally drops the curtain on the circus at 1600 Penn.
The global economy is getting swampy.