New rifts emerge as Trump administration rejects G-20 free trade statement

The Trump administration on Saturday rejected a statement from other leading economies that warned against the perils of trade protectionism, the latest sign of how the administration's more combative approach to diplomacy could create rifts with U.S. allies and leave traditional partners in the dark about the direction of U.S. policy.

Treasury Secretary Steve Mnuchin, appearing at a gathering of economic ministers and central bankers from the 20 largest economies, rebuffed multiple entreaties from German officials to include in the meeting's joint statement language stressing the importance of free trade and that it should be conducted in a "rules based" manner, following existing standards and agreements.

By rejecting language that would have said the United States is opposed to protectionism, the White House sent a clear signal that it would not accept existing trade norms and could pursue a more antagonistic approach with trading partners around the world. Such language has been considered ordinary and uncontroversial in recent meetings of the Group of 20.

"I understand what the president's desire is and his policies and I negotiated them from here, and we couldn't be happier with the outcome," Mnuchin said at a news conference Saturday.

Trump made opposition to free trade a cornerstone of his presidential campaign and pulled the United States out of a sweeping Asia trade deal shortly after taking office, but has not yet followed up with other concrete steps to revamp the terms of America's economic relationship with the world. He has threatened tariffs and other measures to correct what he says are other countries' unfair advantages in their trade relationships with the United States, mostly taking aim at China and Mexico.

For many years, the United States has been the country rallying other nations to the cause of free trade and common language in the communiques that follow meetings of economic ministers and central banks. Several European officials and one former U.S. official who had attended past G-20 meetings said it was the first time the United States had blocked such an effort.

The move follows new strains in the U.S. relationship with Britain and Germany, traditionally two of America's most steadfast allies.

The White House on Friday cited an uncorroborated Fox News report to accuse a British spy agency of surveilling him - an accusation the agency said was baseless.

Then Trump launched a pair of tweets Saturday morning accusing Germany of failing to fulfill its obligations after several negative headlines about his meeting Friday with German Chancellor Angela Merkel in Washington.

"Despite what you have heard from the FAKE NEWS, I had a GREAT meeting with German Chancellor Angela Merkel," Trump said on Twitter. "Nevertheless, Germany owes vast sums of money to NATO & the United States must be paid more for the powerful, and very expensive, defense it provides to Germany!"

(Germany does not owe vast sums of money to NATO, the defense alliance. Member nations are expected to spend 2 percent of their gross domestic product on defense spending, but Germany only spends 1.2 percent. It's unclear what Trump is referring to when he says the United States must be paid more for its defense of Germany, which hosts a major U.S. Air Force base.)

Despite what you have heard from the FAKE NEWS, I had a GREAT meeting with German Chancellor Angela Merkel. Nevertheless, Germany owes.....

— Donald J. Trump (@realDonaldTrump) March 18, 2017

...vast sums of money to NATO & the United States must be paid more for the powerful, and very expensive, defense it provides to Germany!

— Donald J. Trump (@realDonaldTrump) March 18, 2017

German economic officials spoke Saturday in Baden-Baden about the same time Trump sent the accusatory tweets.

German Finance Minister Wolfgang Schäuble said the United States was at an "impasse" with others about what they should say on trade protectionism, so they decided to say nothing at all. He also accused the Trump administration of not having a firm view on what it was seeking in terms of a trade policy.

"Obviously he had no mandate to talk about any definitions or interpretations of what the U.S. administration means by 'fair trade,' and that is something we have to accept for the time being," Schäuble said.

Schäuble said that the finance ministers struggled to reach a consensus on how to approach trade.

"We have agreed on some wording and language on trade policy which may be helpful or not," he said at a news conference.

He added that "sometimes at such meetings you cannot reach all the results that you may want to achieve because you cannot force partners to go along with wording they are not [okay] with."

The Germans had tried to get Mnuchin on board. Sensing opposition to the initial language from the Trump administration, German officials had watered it down several times but Mnuchin resisted.

Finally, about 1 p.m. Saturday, Germany's top central banker, Jens Weidmann, told his colleagues that the efforts to reach an agreement on the trade talks had failed.

Mnuchin then spoke up and asked whether they could agree on more generic language that said the countries wanted to "strengthen the contribution of trade." Several other finance ministers balked, saying such watery language was meaningless.

Still, a version of Mnuchin's proposal ended up in the final agreement, which contained just a brief generic reference: "We are working to strengthen the contribution of trade to our economies."

I think that economic growth in the United States is good for us and good for the other major economies in the world.

Treasury Secretary Steve Mnuchin

The new language was markedly different from last year's, when the finance ministers issued a joint statement that said, "We will resist all forms of protectionism."

"We believe in free trade. We are one of the largest markets in the world. We are one of the largest trading partners in the world. Trade has been good for us and good for other people," Mnuchin said at the news conference. "Having said that, we want to reexamine certain agreements. . . . To the extent that agreements are old agreements and need to be renegotiated, we will consider that as well."

The G-20 first met during the George W. Bush administration, and its purpose is to try to get global agreement on common issues that face each of the countries, such as trade, taxes, financial regulation and national security.

Trump was elected in part because he vociferously rejected existing trade agreements, and the message Mnuchin delivered on behalf of the White House was that it planned to follow through on his campaign-trail promises.

Gary Schmitt, co-director of the Center for Security Studies at the American Enterprise Institute, said Trump could be sending a signal to other leaders that this is a negotiation, and the actions by Mnuchin at the meeting are an opening bid.

"You make people come to you by laying out a strident position," Schmitt said, summing up the approach Trump has used for years in real estate and business. "But over the long term, it's much harder to hold to that. These are people who lead countries and have other trade agreements. The U.S. is going to learn it's not as in-the-driver-seat as they think."

Joint statements issued after G-20 meetings are difficult to finalize and are only as meaningful as the countries want them to be. They aren't formal treaties, but they do signal whether where there is consensus. Many world leaders are trying to determine how Trump's "America First" mantra will affect existing and future trade agreements, which dictate how goods and services are imported and exported around the world. The U.S. economy is the world's largest, and changes the way it buys and sells goods will have global ramifications.

U.S. Treasury Secretary Steven Mnuchin, right, and the U.S. Federal Reserve Chairwoman Janet Yellen. Photo / AP

The White House has said it thinks existing U.S. trade deals are unfair to American workers because it allows countries to lure away American jobs and send their goods to the United States at unfairly low prices. In addition to scrapping the Asian trade deal, Trump has also said he will renegotiate - or scrap - the North American Free Trade Agreement.

Critics of this approach have said it could isolate the U.S. economy, make goods more expensive for Americans, and hurt American companies that rely on exporting their goods around the world.

The angst about Trump's approach quickly became the backdrop at the Baden-Baden meeting, and many foreign officials came seeking more clarity from Mnuchin, whom most had never met. Mnuchin had spent his career in part at Goldman Sachs, starting a hedge fund and working as a Hollywood producer. They wanted to know whether he would veer from Trump on some of the economic nationalism they had heard coming from the White House.

He wouldn't, they quickly learned.

During a closed-door meeting Friday with other finance ministers and central bankers, Mnuchin delivered the same message that Trump had made for months, just slightly softer, according to attendees who spoke on the condition of anonymity to reveal internal discussions: The United States would unapologetically work to redraft trade practices in a way that helps American workers. He said trade agreements need to be "free and fair" and balanced. He also said an overhaul of the U.S. tax code was overdue and that the United States would rethink regulations put in place after the Great Recession.

Mnuchin made clear again and again that what's good for America's economy is good for global growth.

"My primary focus is on economic growth in the United States," Mnuchin said after meeting with Schäuble in Berlin. "I think that economic growth in the United States is good for us and good for the other major economies in the world."

The message was not unexpected, but for many of the officials it was the first time they had heard it in person from a member of Trump's Cabinet.

Mnuchin quickly became the "center of attention," Canadian Finance Minister William Morneau said in an interview. Many sought one-on-one meetings with Mnuchin to explain their position and hear his views. The trade language in the joint statement served as a test to see how dug in Mnuchin - and ultimately Trump - was willing to be on trade.

Still, Mnuchin agreed to numerous meetings as he said he wanted to develop more relationships with his foreign counterparts. He met with top officials from France, South Korea, Japan, China, Saudi Arabia, the European Central Bank, Britain, Germany and Argentina, among others. His first international trip was a blizzard of bilateral discussions, with everyone trying to size up the new treasury secretary.

Despite the reservations about a variety of Trump's positions, numerous officials said they were impressed with Mnuchin's presentation and command of issues. So far, he is one of the only members of Trump's Cabinet who has sought to develop relationships with other foreign leaders. They still don't know whether they will be able to influence his thinking, but they feel he has a willingness to listen, several G-20 attendees said.

"To a person, they have said they have been pleased with the way he is coming at issues," Morneau said. "He is very constructive and talking about good relationships with all of his international counterparts."

Two European officials described Mnuchin as friendly but "tough." They also said the U.S. delegation at the G-20 was routinely checking back with its counterparts in Washington on certain issues, leading some Europeans to wonder with whom they were negotiating, Mnuchin or Trump. But one of the European officials said this was not uncommon for a new administration, which was still formalizing its viewpoint on an array of complicated matters.

The G-20 finance ministers' meeting is the precursor to a gathering of the G-20 heads of state this summer in Hamburg. Many expect the discussions on trade will only intensify by then, but now they know where the United States stands.