G-20 ends highlighting US protectionism and China currency decline – Nikkei Asian Review

BUENOS AIRES -- Heightened trade tensions are creating downside risks to the global economy, finance ministers and central bankers from the Group of 20 leading economies warned in a statement on Sunday, calling for dialogue and action to alleviate the impact.

A meeting of officials from the world's largest economies concluded here Sunday with a communique calling for greater dialogue amid heated trade tensions between China and the U.S. The statement also reaffirmed the spirit of the G-20 summit in Hamburg in 2017, where leaders agreed to combat protectionism in a rare break with the U.S.

Trade restrictions imposed by Washington drew criticism at the weekend meeting. Officials said in the communique that, while economic growth remained firm, "heightened trade and geopolitical tensions," among other factors, were creating downside risks over the short and medium term. They also recognized "the need to step up dialogue and actions to mitigate risks," the document said.

In addition, the rapid decline of emerging-market currencies was at the forefront of discussions, as officials feared market turmoil would further roil a global economy already contending with a trade war.

"Currency depreciation in emerging economies, including China, is inviting capital outflows, creating risk in financial markets," Japanese Finance Minister Taro Aso said on Saturday. Aso met with U.S. Treasury Secretary Steven Mnuchin on Sunday.

The yuan reached 13-month-low levels against the dollar on Friday. Many believe Beijing was allowing the Chinese currency's slide to soften potential economic shocks from the escalating Sino-American trade war.

Washington is irked by the yuan's recent weakness. Mnuchin told reporters on Saturday that the U.S. was monitoring the yuan's depreciation closely to see whether it  was the result of currency manipulation or market forces. Chinese officials brushed off the allegation, saying the yuan's value was based on supply and demand.

The International Monetary Fund has projected global economic growth of 3.9% for 2018. But "in the worst-case scenario under current measures" in the U.S.-China trade war, GDP could take a hit "in the range of 0.5%," IMF Managing Director Christine Lagarde told a news conference. Currency instability would likely worsen any shock.

In addition to China, many emerging economies have seen their currencies depreciate after failed attempts to defend them. Several countries aggressively borrowed dollars to take advantage of low U.S. interest rates. But the Federal Reserve is stepping up the pace of rate hikes, leaving borrowers with a heavier burden, and capital is now flowing out of these countries as investors follow higher yields. 

In developing Asia, where many economies managed to weather the currency crisis of the late 1990s, the trade war is compounding the impact. Trade is the lifeblood of Association of Southeast Asian Nations economies, where exports account for as much as 60% of gross domestic product. Despite bloc members' efforts to build up foreign-currency reserves, the Indonesian rupiah has softened 5% against the greenback since April.

South Korea, which counts China as a major trading partner, has suffered a 6% depreciation in the won. The currencies of Brazil and G-20 host country Argentina have softened drastically against the dollar since April. The Indian rupee and Turkish lira have touched all-time lows against the greenback recently, and their economies have experienced sudden downward pressure, with capital outflows accelerating and inflation observed.

In Saturday's talks, the U.S. faced criticism over import restrictions, Mnuchin claimed that Washington wanted free trade with zero tariffs and urged trading partners to compromise. France's finance and economy minister, Bruno Le Maire, insisted that the U.S. make the first move, with steel and aluminum.

Expectations for the meeting were low even before it opened. German Finance Minister Olaf Scholz told reporters on a plane to Buenos Aires that he did not "expect tangible progress to be made," according to media reports.