That shift followed hours of wrangling that kept officials in suspense on whether the G-20 would even mention trade, with occasional doubts that a communique might be produced at all.

The U.S. delegation, led by Treasury Secretary Steven Mnuchin, wanted a reference on the need for trade to be “fair” while China, a previously unlikely champion in such matters, led a defense of the existing rules-based regime under the World Trade Organisation.

In the end, ministers agreed that “we are working to strengthen the contribution of trade to our economies,” a compromise to salvage what remained of the foundations of an understanding that the G-20 had long largely taken for granted.

Participants such as Pierre Moscovici, the European Union's commissioner for economic and financial affairs, are now holding out for the Hamburg summit to repair the damage.

'No Rollback'

“The single most important decision which helped to fend off a type of depression like in the 1930s in the wake of the Lehman Brothers collapse was that we avoided a fallback into protectionism and that we kept the global economy open,” Moscovici told reporters in Baden-Baden. “I cannot overstate the importance of avoiding any rollback on this.”

Speaking in Hanover on Sunday, German Chancellor Angela Merkel and Japanese Prime Minister Shinzo Abe called for a concerted effort to defend free trade, saying global markets can be both open and fair. “Of course we want fair markets, but we don't want to put up barriers,” Merkel said.

Despite the change in G-20 wording, observers including Isabelle Mateos y Lago, a strategist at the BlackRock Investment Institute, remain sanguine about the Baden-Baden outcome. She told Bloomberg Television that there's still a “glass half full” view.

“The U.S. secretary of the Treasury engaged in the G-20 meeting very meaningfully and very actively at a time when other signals from the U.S. administration were pointing to less interest in global cooperation,” she said. “What matters the most is not what they say — it's what they actually do.”

One area of contention that remained relatively untouched at the G-20 meeting was currencies.

Despite Trump administration criticism of Germany's trade surplus, U.S. officials signed up to the group's prior comments, “including that we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes.” That lack of formal discord doesn't exclude it also becoming another battleground in due course, not least as part of the wider trade discussion.

“The G-20 communique danced around the key topic of protectionism and currency manipulation but bears the imprint of the White House trade concerns,” said Neil Mackinnon, an economist at VTB Capital in London and a former U.K. Treasury official. “An increase in trade protectionism is a key downside risk for the global economy.”

However the discourse evolves, Donovan of UBS observes that such arguments over trade risk being a quarter of a century out of date, because they focus on physical commerce and ignore the changing nature of the economy. Looked at through that prism, the contours of global trade are different: Trump's complaints about the U.S. deficit overlook a surplus in services that amounts to $248 billion, encompassing exports from education to software.

Donovan predicts that physical commerce will decline in relative importance because of the virtual economy and the use of robotics to localize production.

“Supply chains are starting to shrink, and that process is likely to continue,” he says. “The question is whether it happens naturally or in a disruptive manner.”

From: Bloomberg News

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