The world's major financial leaders rejected protectionism at their meeting in Argentina on Tuesday, but failed to exorcise the specter of the trade war being materialized by the protectionist moves of the United States.
With Washington threatening to take more unilateral actions after imposing restrictive tariffs on imports of steel and aluminum products, the finance ministers and central bankers of the world's 20 biggest economies only said they agreed to the declaration on trade from the 2017 Hamburg Summit and recognized the need for more "dialogue and actions" in their final communiqué.
By avoiding direct wording in opposition to Washington's escalation of disruptive trade measures, the other G20 members showed they are yet to reach a consensus on to how to tackle the US' beggar-thy-neighbor moves.
More serious, the message of inaction sent by the G20 statement may be viewed by the U.S. as an attempt at appeasement.
But the Trump administration will not be satisfied by what it has done so far - and China will not be its only target.
As Bank of Italy Governor Ignazio Visco said during the G20 meeting in Buenos Aires, the looming trade war would be a "negative sum game". It is a reflexive response by the U.S. to changes in the global trade order that are not to its liking. But it needs to adjust to the developments, rather than bring all to ruin through a misguided belief it can hold on to the past.
According to a 2017 estimation by the China International Capital Corporation, if the U.S. raised tariffs on average by 5 percentage points, it would, in the short term, reduce China's GDP growth by 0.07 percentage points and raise the US' GDP growth by 0.12 percentage points; but in the meantime, it would also push up the US' inflation rate by 0.24 percentage points and lower the global economic growth by 0.06 percentage points, which will lead to reduced global demand for U.S. goods and services, and affect its GDP growth.
Since the U.S. seems unlikely to mend its ways, other countries should stop hoping they will be spared its protectionist shots and become more resolute in standing firm against them, not least since history shows the pinpricks of protectionism can ultimately lead to the shots of war somewhere down the line.
