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Building resilience KEY

Building resilience KEY TAKEAWAYS The benefits of globalisation and free trade are being increasingly questioned Nationalist policies together with slow growth threaten global trade Fighting to preserve global trade To enhance prospects for international commerce and the role of the US and Europe, steps must be taken to mitigate bilateralism, writes Claudia Schmucker After decades of growing interconnectedness between states, the benefits of globalisation and free trade are increasingly being questioned, particularly by the United States and the European Union. This discontent takes the form of populism, presenting itself in such forms as the US presidential elections and the Brexit decision in the United Kingdom. This rise of nationalist and protectionist policies together with slow global growth and high income inequality poses serious problems for the future of global trade. These downside risks threaten to reduce trade and cross-border investment flows and, in turn, dampen the prospects for strong and inclusive global growth. In the United States, trade policy under President Donald Trump threatens more bilateralism and protectionism. US trade policy is now characterised by unpredictability and a looming threat of retaliatory measures to correct trade imbalances with other countries and regions that are perceived as unfair. Brexit will take a toll on EU trade negotiations for years to come. In addition, the EU needs to reform its own trade policy to overcome internal blockages – which have become apparent in the ratification process of the Comprehensive Economic Trade Agreement (CETA) with Canada. From Taormina via Paris to Hamburg The US emphasis on “America first” and fair trade create difficulties for global economic governance. Since 2008, G20 leaders have called for a moratorium on protectionist measures and promised to roll back existing trade barriers. But at the G20 finance meeting in Baden Baden in March 2017, US Treasury Secretary Steve Mnuchin was unwilling to sign up to these promises. The declaration thus stressed only the importance of trade, with no reference to protectionism. This changed at the G7 Taormina Summit in May, where the other six members convinced the US to include a passage on protectionism, albeit in a weaker form. The communiqué states: “We acknowledge that free, fair and mutually beneficial trade and investment, while creating reciprocal benefits, are key engines for growth and job creation. Therefore, we reiterate our commitment to keep our markets open and to fight protectionism, while standing firm against all unfair trade practices.” The commitment to free trade and an open rules-based trading system has always been at the core of the G20 58 G20 Germany: The Hamburg Summit • July 2017

Building resilience Since 2008 G20 leaders have sought a moratorium on protectionist measures The G20 and Germany and the EU need to set a positive trade agenda Steve Mnuchin arrives at Trump Tower in Manhattan, New York, December 2016 Claudia Schmucker This was considered a breakthrough for a successful G20 Hamburg declaration. However, two weeks later, at the Organisation for Economic Co-operation and Development’s ministerial meeting in Paris in June, US Trade Representative Robert Lighthizer could not agree to common language so the chair issued a statement that included areas of “near consensus”. These referred to particular trade aspects such as strengthening the importance of the World Trade Organization in the multilateral trading system and resisting all forms of protectionism. The United States then issued a separate statement on trade enforcement with no reference to protectionism. What does this mean for Hamburg? The outcome on trade remains unpredictable. The best hope is a reiteration of the Taormina declaration. The commitment to free trade and an open rules-based trading system has always been at the core of the G20. As a group with no input legitimacy (in terms of universal participation), it must achieve such legitimacy through its effectiveness (output legitimacy). Eliminating this text from the final declaration would weaken the impact of this informal group. The German presidency must therefore maintain a constructive dialogue with the US administration and its more moderate voices, and count on old and new allies including Japan, China, Mexico and Argentina to send a strong signal at Hamburg in favour of free trade and the multilateral trading system. In the current climate of uncertainty and low growth, a clear and concerted signal by all G20 leaders is badly needed. Otherwise, the G20 will have failed. The G20 and Germany and the EU also need to set a positive trade agenda to show that progress is possible. This relates to multilateral and plurilateral trade negotiations, and also encompasses support for an effective European trade policy that must include the full ratification of CETA as well as the conclusion of agreements with Japan, MERCOSUR and Mexico, possibly this year. The outcome of the Transatlantic Trade and Investment Partnership remains unclear, given developments in the United States and Europe. Deep and ambitious free trade agreements that shape globalisation without lowering standards constitute an effective tool against growing protectionist tendencies. G20 DPA PICTURE ALLIANCE / ALAMY Head of the Globalization and World Economy Program German Council on Foreign Relations Claudia Schmucker has been Head of the Globalization and World Economy Program at the German Council on Foreign Relations since 2002. Before joining the research institute, she was a project manager at the Centre for International Cooperation in Bonn. She has written widely on the global financial crisis and the role of the G20 and the International Monetary Fund as well as on the World Trade Organization and the world trading system. @dgapev July 2017G20 Germany: The Hamburg Summit 59

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