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Trade war

Rising trade tensions threaten global recovery: G-20 ministers

Finance officials also agree to close tax loopholes used by global tech giants

The Group of 20 finance ministers and central bank governors were optimistic about a global economic rebound when they last met in June. Trade tensions hover over this week's reunion.   © Reuters

FUKUOKA, Japan -- Intensified trade tensions threaten an expected recovery in the global economy later this year, a meeting of G-20 finance ministers warned on Sunday.

The officials also worked to close tax loopholes used by global technology giants such as Google, Amazon and Facebook.

"Global growth appears to be stabilizing, and is generally projected to pick up moderately later this year and into 2020," the ministers said in a joint statement. "However, growth remains low and risks remain tilted to the downside."

"Most importantly, trade and geopolitical tensions have intensified. We will continue to address these risks, and stand ready to take further action," the statement said.

The meeting in the Japanese city of Fukuoka comes amid an escalating trade war between the U.S. and China, which the International Monetary Fund said last week could shave off 0.5% from global gross domestic product next year.

The IMF and the World Bank both downgraded their economic outlooks last week, pointing to trade tensions as the main reason.

Bundesbank President Jens Weidmann said that the spat could reduce global trade by 1% in the mediums term, Reuters reported. "The world economy is suffering a lot from the uncertainty," he said after the G-20 meeting concluded.

Finance ministers said that the global economy would likely pick up later this year and extend into next year.

"This recovery is supported by the continuation of accommodative financial conditions, stimulus measures taking effect in some countries, and one-off factors dissipating," the joint statement said.

The meeting also re-emphasized that international trade and investment are important engines of growth and productivity, and reaffirmed conclusions on trade reached by the Group of 20 leaders summit in Argentina last December.

Earlier, several media reports said that a clause in the joint statement to "recognize the pressing need to resolve trade tensions" had been deleted at the insistence of the U.S.

IMF Managing Director Christine Lagarde, who attended the weekend finance ministers summit, said the G-20 should make resolving trade tensions a priority.

"We met at a time when the global economy is showing tentative signs of stabilizing and growth is projected to strengthen," Largarde said in a statement. "The road ahead remains precarious and subject to several downside risks."

U.S. Treasury Secretary Steven Mnuchin on Saturday rejected suggestions that the U.S. trade war with China is to blame for slowing momentum, pointing out that there had been signs of trouble before President Donald Trump imposed tariffs on Chinese imports.

"Clearly there is a slowdown in Europe, there is a slowdown in China, there is a slowdown in other parts," Mnuchin told reporters, adding that he did not think this was "in any way the result of trade tensions at the moment."

Mnuchin, who discussed the economic tensions between the U.S. and China in a one-on-one meeting with People's Bank of China Gov. Yi Gang on Sunday, said trade talks between the world's two biggest economies were unlikely to make any headway before Trump and Chinese President Xi Jinping meet at the G-20 leaders summit in Osaka, Japan, from June 28 to 29.

"Had constructive meeting with PBOC Governor Yi Gang, during which we had a candid discussion on trade issues," Mnuchin said in Twitter post on Sunday.

Mnuchin said the upcoming meeting in Osaka had parallels with meetings between the two presidents on the sidelines of the G-20 summit in Argentina last December, when Trump agreed to pause tariff hikes on $200 billion worth of Chinese goods, a step he eventually took in May.

"If they want to come back to the table and have a real agreement, we will be prepared to negotiate," Mnuchin said. "If they want to come back to the table and complete the deal on the terms that we were continuing to negotiate, that would be great. If not, we will continue on our plan" to keep raising tariffs.

Trump has stated previously that he stands ready to impose 25% tariffs on a remaining list of $300 billion worth of Chinese goods if the two countries are unable to resume negotiations.

Mnuchin also met on Sunday with Japanese Finance Minister Taro Aso to discuss issues of global economic concern. "We discussed the ongoing close cooperation between the U.S. and Japan across a number of economic and security issues," Mnuchin said in a separate tweet.

Japanese officials said prior to the meeting that Aso would explain Japan's stance that the issue of global current-account imbalances should be addressed through multilateral policy coordination, rather than through a bilateral trade deal.

Aso and Mnuchin also likely discussed sanctions on North Korea for violations of U.N. Security Council resolutions banning it from testing ballistic missile technology, according to the officials.

Mnuchin on Saturday said he was not planning to touch on the inclusion of a provision to prevent competitive currency devaluation in a trade pact.

While trade tensions dominated the weekend summit, ministers did agree to close loopholes allowing multinational companies to shift their profits to low-tax jurisdictions and minimize their corporate tax bills.

Britain and France have been among the most vocal proponents of proposals to tax big tech companies that focus on making it more difficult to shift profits to low-tax jurisdictions, and to introduce a minimum corporate tax.

While big corporations across the world have enjoyed an earnings boom in recent years, data compiled by QUICK FactSet and analyzed by Nikkei showed that the amount of tax paid on pretax profits by the world's top 100 companies in terms of market capitalization declined to 23% in 2018 from just over 30% in 2000.

The new rules would mean that companies widely seen to abuse existing loopholes would find it harder to shift to countries such as Ireland.

"We welcome the recent progress on addressing the tax challenges arising from digitization and endorse the ambitious program that consists of a two-pillar approach," the G-20 ministers said in their joint statement. "We will redouble our efforts for a consensus-based solution with a final report by 2020."

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