LDN - Business

Exclusive: Germany to press G20 on free trade in potential challenge to Trump

[March 15, 2017] By Takashi Umekawa and Michael Nienaber

TOKYO/BERLIN (Reuters) - Germany will press G20 members to sign off on a set of principles including free trade at this week's meeting of the group's financial leaders, in what the Trump administration may perceive as a challenge to its more protectionist stance.

In an unusual move, Germany, the host of the meeting, will stress the importance of global free trade in a document separate from the group's main communique, G20 sources said.

The move underscores Germany's desire to rebuff any explicit U.S. demands to water down the group's commitment to free trade, as German Chancellor Angela Merkel prepares for her first meeting with President Donald Trump on Friday.

Attaching a separate document also would allow Germany to clarify its priorities and avoid them being overshadowed by what could be a more heated debate on protectionism and currency policy.

It is rare for a G20 chair country to issue a document separate from the main communique, especially one that differs on the tone and priorities.

Bundesbank President Jens Weidmann outlined Germany's priorities on Wednesday, challenging the new U.S. administration's more protectionist stance on the eve of the meeting in Baden-Baden on Friday and Saturday.

It will be the first G20 finance chiefs' meeting attended by representatives of Trump's administration.

Calling a rejection of protectionism one of the greatest achievements of the G20, Weidmann asked finance chiefs to reaffims this commitment, protecting what he argued was a key pillar of economic prosperity.

But a draft of the main G20 communique seen by Reuters appeared to accommodate Trump's views on trade by dropping a phrase resisting "all forms of protectionism".

But any attempts to dilute the commitment to free trade will likely face resistance from emerging economies reliant on global exports, including China, putting the onus on Germany to seek a compromise.

FREE TRADE

It is unclear if Trump and his team, which has espoused fair trade more than free trade and has discussed a border tax on imports, would sign the document.

The document, which is currently being circulated among G20 members, lays out a list of about 10 principles on how a "well performing economy" should act on areas of fiscal, monetary and trade policies, the sources said.

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The German national flag is seen in front of dark clouds at the Chancellery in Berlin, Germany, May 30, 2016. REUTERS/Fabrizio Bensch

It highlights areas Germany places importance on, such as the need for countries to make their financial system resilient to shocks and to refrain from excessive fiscal loosening through "prudent management of public finances", the sources said.

"Among the most important issues from Germany's point of view, regarding the world's economy, is the issue of resilience. That's our top priority," one of the sources said.

Meeting in Hangzhou, China, last fall, G20 leaders repeated their opposition to protectionism in "all its forms", even expressing concern about slowing global trade, suggesting that Germany is keen to resist U.S. efforts to water down commitments, even at the risk to failing to achieve consensus.

Germany often argues that economies should not rely too much on short-term stimulus and take steps to strengthen fundamentals so that their economies are resilient against shocks.

The sources spoke on condition of anonymity because they are not authorities to speak to the media.

Germany hopes to have G20 members sign off on the document in Baden-Baden, though some government officials concede not all countries would back it this week.

"Let's see if we'll get everyone on board in Baden-Baden or only after at the summit of leaders (in July)," one official said.

Merkel underscored the importance of free trade in a speech to business leaders in Munich this week. Her talks with Trump in Washington are expected to touch on a range of issues, including defense spending.

Causes of friction between Berlin and Washington also include an accusation by senior Trump adviser Peter Navarro that Germany profits unfairly from a weak euro and a threat to impose 35 percent tariffs on imported vehicles.

(Writing by Leika Kihara; Additional reporting by Balazs Koranyi; Editing by Kim Coghill and Alison Williams)

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