The failure of the world’s financial leaders to agree on resisting protectionism and support free trade marks a setback in the G20 process and poses a risk for growth of export-driven economies such as host Germany, economists said on Sunday.
Acquiescing to an increasingly protectionist United States after a two-day meeting in the German town of Baden-Baden, the finance ministers and central bank governors of the 20 biggest economies dropped a pledge to keep global trade free and open.
Instead, they only made a token reference to trade in their main communique by saying the G20 would work together to strengthen the contribution of trade to their economies.
“The weak wording on trade is a defeat for the German G20 presidency,” Ifo economist Gabriel Felbermayr told Reuters.
“This is particularly true in the light of the fact that Germany is one of the world’s strongest export nations and relies on open markets to maintain its prosperity like hardly any other country.”
Private consumption and state spending have become the main growth drivers of Europe’s biggest economy, but exports still account for roughly 45 percent of its gross domestic product.
“The lack of a rejection of protectionism is a clear breach of tradition. Now everything is possible,” Felbermayr said. The future would probably bring a weakening of the World Trade Organization (WTO) and a more aggressive use of protectionist policies, he added.
The Association of German Chambers of Commerce and Industry (DIHK) said the token reference to trade was a serious setback for the multilateral trade order.
“The result is a warning shot for every trading nation and this means also for the German economy,” DIHK foreign trade economist Volker Treier told Reuters.
“The German economy has to adapt itself to the fact that ‘America First’ will also mean a loss for us. So instead of a win-win situation, there will probably be a lose-lose situation.”