Finance chiefs from the world’s largest industrialized economies sounded a note of cautious optimism this weekend on U.S. plans for a tax overhaul, and agreed to bolster the financial system against increasingly sophisticated cyberattacks.
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But finance ministers and central bankers from the Group of Seven leading nations avoided tackling one of the biggest worries among global policy makers: whether the Trump administration’s America-first trade policies are setting the world’s largest economy on a protectionist course.
Leaving controversial talks on trade until a G-7 leaders’ summit scheduled for later this month, officials instead pushed U.S. Treasury Secretary Steven Mnuchin for details on President Donald Trump’s tax package, unveiled late last month.
After two days of talks in a 12th century Norman castle, many delegations expressed a measure of relief.
“The emphasis was initially on a border tax, which is taxation, but also trade policy,” said Italian Finance Minister Pier Carlo Padoan in an interview. “Now, the emphasis–and Secretary Mnuchin was very clear about this–is about tax reform.”
Another senior official from the delegation said, “Each one of us is following developments in U.S. tax policy very closely. What they are considering now is a lot less worrying.”
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Many G-7 countries had been particularly concerned about the U.S. rolling out a border tax that could choke exports to the country.
While the administration says it is still considering some version of a border-adjusted tax, it doesn’t plan to use the congressional proposal that spooked America’s trade competitors.
There is also some concern Mr. Trump’s tax plan could push the country deeper into debt, raising questions over the administration’s argument that cutting corporate tax levels to 15% from their current 35% rate will be financed by revenue generated by a higher pace of economic expansion.
And some officials are uneasy about the tax overhaul fueling a degenerative competition toward lower corporate tax rates around the world.
Still, some officials are hoping the less-trade-focused tax plan is a sign the administration won’t move forward with its most-aggressive trade-policy threats.
A slew of recent announcements–including an investigation into steel imports and a warning the U.S. may pull out of a trade agreement with Canada and Mexico–have renewed fears the Trump administration could spark a trade war that could hit the global economy just as it appears to be gaining momentum.
The Trump administration is trying to convince countries that its trade policies are designed to encourage other countries to drop their barriers to imports and rebalance the global trading system.
“People feel much more comfortable today now that they’ve had the opportunity to spend time with me and listen to the president and hear our economic message on what the Trump economic agenda is, and that’s about creating growth in the U.S.,” said Mr. Mnuchin.
Yet, he added, “We don’t want to be protectionist, but we reserve our rights to be protectionist to the extent that we believe that trade is not free and fair.”
The threat of a trade war is only one of several risks to the global economy, however. Nearly a decade after a financial crisis ripped through the global economy, G-7 officials said they are wary of another big threat to growth.
Ministers are also trying to develop a strategy for “inclusive” economic growth–ensuring policies benefit the poor and middle class, and don’t exacerbate growing income inequality–to counter a global political backlash against globalization.
G-7 governments–Canada, France, Germany, Italy, Japan, the U.K. and the U.S.–have struggled to turn their concern for inclusive growth into policy action, however. Economists point to the Trump administration’s focus on reducing the U.S. trade deficits with other countries rather than retraining the labor force.
There is broad consensus among economists, for example, that more than two-thirds of the job losses over the past two decades were a result of automation, with only a third from jobs being moved to countries with cheaper labor and production costs.
Ministers also mandated a special working group created to combat threats to cybersecurity to start testing the financial system’s vulnerability to attacks. Officials said they are trying to work more closely with the private sector, including through deeper data collection and sharing solutions to attacks.
Underscoring the cybersecurity threats, G-7 officials pointed to a massive attack that scrambled computer systems in dozens of countries on Friday.
“To the extent people had patched their networks, this would have been prevented,” said Mr. Mnuchin. “This is a reminder to all of us the importance of cybersecurity.”
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