G20: the first confrontation of Populism with Econoracy

Over the past weekend, the finance ministers and central bank governors who represent the countries that claim to have the twenty largest economies in the world have been holding a routine meeting in the plush German resort of Baden-Baden. Nineteen of the finance ministers were meeting the new boy, who many of them had come to know during his career as a major New York banker, US Treasury Secretary Steven Mnuchin. After the meeting he summarised the message that he had brought to his peer group: which was the direct repudiation of the rhetoric that had been the regular fare of the G20 for decades past. The G20 always expressed determination to support 'free trade' and to oppose mercantilism and protectionism [a government discriminating against imports, for example by imposing import taxes, known as tariffs]. Though individual governments did apply tariffs to some imports, as the USA under President Obama slapped heavy duties on the extremely cheap Chinese steel that had begun to flood the world market around 2010, these were usually applied to situations that could be described as exceptional. Many countries also also applied tariffs to protect 'infant industries, or to allow native producers time to adjust to changes in world supply and demand for specific products, or to conserve declining sectors of the economy until alternative employment was found for the people whose jobs would come to an end. These were all seen as special cases.

The general rule was that 'free trade' was a global ideal; an idea that was central to the dogma that was adumbrated by Adam Smith in 1776 and refined into complex absurdity by by the contemporary economics professors whom the Manchester student 'rebels' call the Econocracy [mentioned in my last bog].

In Baden-Baden, Secretary Mnuchin told the press that the oft-repeated platitudes about opposing protectionism were 'not really relevant' to the world of 2017. That whole agenda should be replaced by a focus on 'balanced trade', which can be taken to mean the same as 'fair trade' to which candidate Trump referred often as he secured a populist following sufficient to propel him to the White House. The pressure for countries generally to lower tariffs, which had been characteristic of world trade talks for two generations, would end. Thus in a single meeting the populist wave in the USA was carried to the heart of the previously-cosy global community of liberal ministers and technocratic bankers; and they rolled on their backs and accepted it. None of the other finance ministers was sure how consistently the Trump administration would carry forward their agenda, and several of them suggested that any lost ground could be recovered, perhaps even at the upcoming July meeting of the heads of government from the G20 states. I think that they delude themselves. Trump is well away from the concept of compromise; and he really believes that he has a popular mandate.

Also announced after the meeting was the intention to inaugurate a review of the measures that had been imposed by central banks on the commercial banks in each country, to restrict their behaviour in an attempt to prevent a re-run of the conditions that had produced the 2007-8 crunch in global financial markets. President Trump intends to weaken the Dodd-Frank package of laws by which the USA fell broadly in line with other countries; and he is not alone in being pressed by commercial bankers to relax the conditions under which international finance is conducted. It is likely that, led by the USA [in the person of the very distinguished banker, Mnuchin] the G20 will back-track on the prudential reforms that have been put in place worldwide. In this way a numerical minority of the US electorate is changing global economic policy, within three months of the inauguration of the candidate who had a clear plurality of Electoral College votes in the November General Election. There is no telling how far this will go; but the first steps are momentous and should so be recognised. The world was changed over the weekend.