By Ian Talley and Tom Fairless
WASHINGTON -- Economic leaders from around the world sought to
find common ground Saturday, worried building geopolitical tensions
risk derailing an accelerating global economy.
While France's upcoming elections threaten to upend the European
Union and revive market paroxysms in the region, it was the Trump
administration that took center stage at the semiannual meeting of
the World Bank and International Monetary Fund member
countries.
Though finance chiefs have recently feared global politics --
such as the French elections, strife in the Middle East and a
standoff with a nuclear-armed North Korea -- could spoil a
long-awaited world-wide economic recovery, unease over U.S.
policies -- such as the possibility of Washington starting a trade
war with China -- dominated discussions between the world's finance
ministers and central bankers.
"While the outlook is improving, growth is still modest and
subject to heightened political and policy uncertainties," the
International Monetary Fund's governing committee said in an
official statement Saturday.
"We have probably moved from high financial and economic risks
to more geopolitical risks," IMF Managing Director Christine
Lagarde said Saturday.
Earlier in the week, the IMF forecast the global economy to hit
its fastest pace in five years as a strengthening U.S. gathers
steam, emerging markets recover from a commodity bust and the
European and Japanese economies show signs of finally returning to
health.
The global economy faces numerous challenges, including weak
productivity growth, high debt levels and potential financial
turmoil in the U.S. and China, the IMF said.
Foreign governments are particularly nervous over the direction
of U.S. economic and foreign policy. Two chief concerns are whether
Washington will deliver on threats to levy sanctions against trade
partners and if President Donald Trump might counter North Korea's
aggression with force. Economists warn the first -- such as if the
administration moves ahead with a proposal to curb steel imports --
could trigger a trade war that could potentially shave 2 percentage
points off global growth, according to the IMF. The second,
analysts worry, could ignite a dangerous regional conflict.
Recent gyrations in global markets show investors are jittery
and less optimistic about the Trump team's ability to goose U.S.
growth with tax cuts and infrastructure spending. And some
governments are worried the new U.S. government could expose the
world's largest economy to fresh debt problems if its tax cuts
don't juice growth to the degree the administration projects.
When finance leaders from the world's top 20 economies met last
month in Germany, many "were really upset, sometimes silent...in
the face of positions that were expressed forcefully during the
campaign and again during the first weeks of the administration,"
said Michel Sapin, France's finance minister, in an interview
Saturday.
Now, say Mr. Sapin and other ministers, officials are waiting to
see whether the Trump team's combative rhetoric turns into actual
policy.
"Studies are being carried out," said Austrian Finance Minister
Hans Jörg Schelling, but it remained to be seen what policies would
emerge. Fears that the U.S. might move toward isolationism and
protectionism under the new administration had created uncertainty,
but weren't yet being translated into practice, said Ewald Nowotny,
who sits on the European Central Bank's rate-setting committee.
Amid those anxieties, officials sought details on the
administration's policy plans and to encourage the U.S. to more
taking a more cooperative approach.
"Looking out for good deals for one's own country is completely
legitimate," said German Finance Minister Wolfgang Schäuble.
"However, experience shows that the best deal for one's own country
is ultimately the deal that also benefits other parties," he
said.
Anxiety over the Trump administration is why the world's finance
chiefs were searching for common ground with U.S. Treasury
Secretary Steven Mnuchin. Some looked to build diplomatic bridges
by offering to work more closely to combat terror financing, a
priority for the White House.
And in the IMF governing board's official statement published
Saturday, finance chiefs dropped a reference to "resist all forms
of protectionism" that previous communiques had used. Bowing to the
IMF's largest shareholder, the U.S., the group instead adopted U.S.
phraseology on trade.
"We will work to promote a level playing field in international
trade and taxation," said the group, which acts as an executive
board for the global economy.
"We tried to...strike a positive, constructive balance," said
Agustín Carstens, Bank of Mexico chief and IMF governing-board
chairman. "The word protectionism is very ambiguous."
Taro Aso, Japan's deputy prime minister and finance minister,
said that while the U.S. is emphasizing national interests, "that
doesn't mean they reject free trade."
The Trump team doesn't like other countries classifying its
proposed actions -- some of which trade lawyers say could violate
World Trade Organization rules -- as protectionist. Rather, it
seeks to rebalance distorted trade relationships with China,
Germany and other countries with large surpluses Washington says
are caused by unfair practices at the expense of U.S. workers and
industries.
"The U.S. is probably the most open market in the world," Mr.
Mnuchin said Saturday after the meetings. "We have very little or
no tariffs," unlike many other economies, he said. The
administration's trade proposals are meant to pressure other
countries to fix unfair trade policies.
At an Institute of International Finance policy conference
Thursday, Gary Cohn, head of Mr. Trump's National Economic Council,
said fair trade "means treating our trading partners the way they
treat us."
"We should treat you in a reciprocal fashion," Mr. Cohn
added.
Douglas Rediker, a senior fellow at the Brookings Institution
and former U.S. representative to the IMF, said policy
uncertainties "dominated the meeting, but were not resolved at the
meetings."
That leaves many countries around the world on edge, "holding
their breath," he said.
"We still need to see how Trump's main policies are going to be
spelled out," said Domenico Lombardi, a former Italian
representative to the IMF, now a director at the Center for
International Governance Innovation.
The IMF, trying to accommodate what it sees as some legitimate
U.S. complaints about distortions in the global economy, said it
would bolster its oversight of member-country economic policies --
particularly on exchange rates and trade imbalances -- and sharpen
its critiques of policies threatening to destabilize the global
economy.
While that surveillance includes a detailed assessment of the
Chinese and German economies, it will also focus on the U.S.
But, Ms. Lagarde said, the IMF can only give its counsel. It is
up to the member countries to take it on, or reject it. "We will
see...how seriously it is taken," she said.
--Yuka Hayashi contributed to this article.
Write to Ian Talley at ian.talley@wsj.com and Tom Fairless at
tom.fairless@wsj.com
(END) Dow Jones Newswires
April 22, 2017 21:03 ET (01:03 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.