G20 finance ministers and central bank governors gathered in North Carolina this week to set shared economic priorities for 20 of the world’s leading economies.
At the close of the event, G20 Chair and U.S. Treasury Secretary Scott Bessent released a statement reflecting the agreement of 19 of those countries on various priorities.
A key one is to address “excessive and persistent imbalances” in global trade. Rightly, the statement calls on countries to “take steps to eliminate non-market policies and practices that exacerbate imbalances.”
Unsurprisingly, China was the sole holdout. While the statement didn’t name China expressly, it is China’s excessive trade imbalances that are a concern for the global economy.
Unfortunately, though, the United States has taken the entirely wrong approach to addressing this problem, including by making enemies of former allies.
As Canadian Affairs has reported, China poses a serious threat to the industrial sectors of advanced economies around the world.
China heavily manages its economy in ways that lead companies to produce vastly more goods than its domestic population can consume, at prices well below what international companies can compete with.
Specifically, a mix of currency controls, state subsidies and suppressed domestic wages mean excess cheap Chinese goods flood global markets year after year.
This dynamic is present not only in lower end manufacturing, such as toys, clothes or furniture, but also now in tech and high-end manufacturing, such as phones and cars.
Germany’s long-vaunted car industry, for example, faces an existential threat from cheaper Chinese cars. The industry has had tens of thousands of job layoffs in recent months.
Of course, in our globalized economy, cheap goods have benefits. We are living in a golden age for consumers. Everything we need is at our fingertips, often at prices well below what we used to pay for things like furniture or appliances.
But cheaper goods are not necessarily a good trade-off if they wipe out the jobs needed to sustain a strong economy and robust consumption.
“We’ll get cheaper imports, but we won’t have industries that support the incomes to buy those imports,” Jim Stanford, a McMaster University economics professor, told Canadian Affairs in May.
While classic economists will argue free trade benefits all sides, these benefits break down under the conditions of excessive and persistent trade imbalances.
Many advanced economies are now becoming alert to this threat.
Earlier this year, International Monetary Fund head Kristalina Georgieva called for a coordinated response to global trade imbalances. The European Union, likewise, is starting to push back on what it recognizes to be a serious problem.
For more than a decade — under both Trump administrations and the Biden administration — the United States has tried to address the problem as well, primarily with tariffs.
But there have been some serious problems with the United States’ approach.
One, is that it has, for the most part, gone about it unilaterally and haphazardly. It imposed punitive tariffs on China last year, but then backed down after China threatened to withhold critical minerals.
More significantly, it has made enemies of allies, alienating the very countries it needs to mount an effective response.
This week was a case in point. Mere days before releasing his statement as G20 chair, Bessent was throwing barbs at Canada, demeaning the size of our economy and military.
A more principled and respectful administration would have done the opposite. It would have sought buy-in from trading partners about the need for coordinated action against China. And it would have then led a coordinated, multilateral response.
China has the escalation dominance to withstand targeted action by one country, even the world’s only other superpower. But you can bet that coordinated, sustained and substantial tariffs by a group of countries responsible for most of the world’s imports would prompt a different one.
In the absence of leadership by the United States in this area — at least for the next two years — it will be necessary for other leading economies to take action.
As we argued in a previous editorial, we think Prime Minister Mark Carney has the international goodwill and gravitas to lead such a response.
But it concerns us that the Carney government has shown no signs that it regards China’s industrial model as a real problem. To the contrary, this year, it struck a deal with China that actually gives Chinese electric vehicles a foothold in our market.
We understand Carney is in a tough spot. The United States’ actions toward us make it necessary to further diversify our trade.
But we would urge against turning to China as an alternative. China’s current model of suppressing domestic wages, subsidizing industrial production and exporting its resulting excesses does not align with the needs of the Canadian economy.
We are trying to get out of bed with one superpower. Getting into bed with another is not the answer.
