From time to time, governments consider it beneficial to have a weaker currency to increase exports as products will become cheaper for the receiving country allowing them to purchase more. However, such a tactic sets competing businesses in the home countries at a disadvantage, thus many economists and world leaders frown on the financial maneuver as it is seen as an attempt by the exporting country to gain an unfair advantage over the competition in the receiving country. This is one of the reasons the financial leaders of the twenty richest countries in the world (The G20) met to denounce the practice (currency devaluation) and warn against excessive trade rate volatility as such an environment makes international trade much more difficult.
Though they all agreed on the topic of currency devaluation, they have yet to find common ground on the topic of free trade versus protectionism, reports from their meeting in Germany showed on Friday. For different reasons, considered valid to some economists and politicians alike, and some more open to criticism, various leaders in power, and several prominent ones in the middle of heated election campaigns, have promised to bring quality, high paying jobs back to their home country through erecting tariffs to stop cheaper products from flowing in from countries with much lower wages (and most of the time worse working conditions). This concept, is considered protectionism.
With President Trump’s statements on his intent to renegotiating NAFTA to include an import tariff on products from Mexico, some finance ministers are arguing it would drive up the cost of goods, while Trump’s administration makes the point that it is difficult for American workers to compete with their Mexican counterparts due to the exchange rate and the cost of labor in Mexico. With Trump being the President of America, it is part of his duty to put American interests first, and he has taken the stance that Mexican workers are taking American jobs. US Treasury Secretary Steve Mnuchin reassured leaders on Thursday that America had no intentions on beginning a trade war, but emphasized that certain relationships needed to be reexamined to make them fairer to US workers.
This year, a departure from previous G20 traditions was noted – the communique presented to Reuters and other international publications always reject protectionism and endorse free trade; however, this year no mention of either issue has been made in the official communique yet. The US is endorsing “open and fair” trade (with “fair” being up for interpretation), and the EU is pushing “rule-based” trade while rejecting protectionism. While some countries wanted to address trade more directly, others (including the country that holds the yearly rotation of the G20 presidency) wish to avoid it to avoid direct conflict. EU delegates are expected to engage US representatives on the topic of rolling back financial regulation as they consider the Obama era regulations of fundamental importance to protect both economies (since Europe’s economy and financial system is tied directly to America’s).