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President Donald Trump’s reversal of plans for new tariffs on Mexico is rare good news for a world economy that’s being buffeted by escalating US-China trade tensions.
Central bank chiefs and finance ministers gathered in Fukuoka, Japan, for meetings of the Group of 20 were quick to welcome Trump’s reprieve, saying it removed one of the biggest worries for companies and investors.
"It’s good that the 5% tariffs won’t now be imposed, and that’s not just good for the US and Mexico, it’s also beneficial for the global economy," Bank of Japan Governor Haruhiko Kuroda told reporters.
Some 0.6% of global output is embedded into trade flows between Mexico and the US, according to Bloomberg Economics, and 15.5% of Mexico’s GDP depends on trade with the US. Tariffs on that flow threatened to add to the drag already being felt by the levies China and the US have inflicted on each other’s goods in their deepening trade confrontation.
Indonesia Finance Minister Sri Mulyani Indrawati described the Mexico news as "very plus plus" and said it may signal that the US 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.
Broader concerns over rising protectionism and the US-China trade war is dominating discussions here, with officials warning the dispute continues to hurt growth. They are wrangling over language on how to describe global trade disputes in a communique that is to be published at the meeting’s conclusion.
A fifth draft version of the statement seen by Bloomberg News referenced the need for a "pressing need to resolve trade tensions" amid an escalating conflict between the US and China.
Treasury Secretary Steven Mnuchin said the US remains open to continued negotiations with China on trade and will meet with China’s top central banker, Yi Gang, this weekend, giving him the first chance to break an impasse since talks broke down last month. But Mnuchin said "this is not a negotiating meeting," even as he signaled a willingness to get talks rolling again.
"If they want to come back to the table and have a real agreement, we will negotiate. If not, we’ll go forward with our plan" to impose more tariffs, Mnuchin told reporters.
On Mexico, Mnuchin said he "couldn’t be more pleased with the deal."
Leading into the meetings, the World Bank cut its 2019 global growth forecast, citing a slowdown in trade growth to the weakest since the financial crisis a decade ago and a drop in global investment. The bank forecast that the world economy will expand 2.6% this year, compared with a projection of 2.9% it made in January.
"There’s no doubt that the escalating trade tensions have weighed on the global economic outlook,” Australian Treasurer Josh Frydenberg told Bloomberg Television Friday. On a panel on Saturday in Fukuoka, China’s Finance Minister Liu Kun warned the world economy is weak.
Deborah Elms, who tracks the negotiations at the Singapore-based Asian Trade Center, said even the threat of tariffs will leave long term damage.
"He got what he wanted. Why not do it again?," Elms said.
Elsewhere, in a sign that multilateralism is not completely out of fashion, policy makers at the meetings called for continued progress on finding ways to limit international tax evasion.
Cooperation “stands out as a case study on how multilateralism can be effective in the face of today’s challenges,” India Finance Minister Nirmala Sitharaman said on a panel Saturday.
“Multi-laterally is the way to go,” Angel Gurria, secretary-general of the Organisation for Economic Co-operation and Development, said on the same panel.
