Treasury Secretary Mnuchin's answer to protectionism still baffles

The spacious atrium at the International Monetary Fund (IMF) was packed on a rainy Saturday afternoon with people waiting for a conversation on the US economy between IMF Managing Director Christine Lagarde and US Treasury Secretary Steven Mnuchin.

It was probably the first such public event for Mnuchin since he was confirmed by the US Senate on Feb 13 to be the 77th US treasury secretary.

The audience, coming from around the world for the 2017 IMF/World Bank annual spring meeting, had many questions for Mnuchin. One of them is whether their concern about US protectionism is justified.

They have plenty of reasons to be worried. Just a few hours before the talk, the International Monetary and Financial Committee (IMFC), the IMF steering entity, issued a communique that does not include the usual pledge to resist all forms of protectionism.

It reminded people of the G20 statement last month in Germany, when that language was deleted for the first time, said to be under the pressure of Mnuchin, a former hedge fund manager.

Many people have had such concern since Trump made a campaign promise to impose 45 percent tariffs on China's exports to the US, thereby triggering a trade war between the two largest economies.

That concern has been dramatically reduced in recent weeks, especially after the meeting between Trump and President Xi Jinping in Mar-a-Lago, Florida early this month.

But Trump's executive order to withdraw the US from the 12-member Trans-Pacific Partnership (TPP), his halt of the Transatlantic Trade and Investment Partnership (TTIP), his bid to renegotiate the North America Free Trade Agreement (NAFTA) and the proposal for a border adjustment tax to target imports all show signs of protectionism.

That is in addition to Trump's repeated threat to US corporations that have or are planning to invest in or move their manufacturing facilities overseas to leverage global supply chains.

Americans also are divided on free trade agreements. A Gallup poll released in February showed that 48 percent believe NAFTA has been good for the US, while 46 percent say it's been bad.

So when Lagarde brought up the question on trade, phrased in a mild way, Mnuchin said Trump's agenda is to make sure "we have free and fair trade".

"I think you know the United States is probably the most open trading market there is for both goods, services and investment," he said.

He noted that the only restriction the US has on investment is the CFIUS process for security review, referring to the Committee on Foreign Investment in the United States.

"The president believes in reciprocal trade deals, and reciprocal free trade. What that means is that if our markets are open, there should be a reciprocal nature to other people's markets that are open as well. That's what he believes in, free and fair," said Mnuchin, repeating much of Trump's rhetoric.

"What's not free and fair is if our markets are open, other people either have high tariffs or have high import barriers, non-tariff barriers. That creates one-sided issues," he said.

"So tit for tat? I am open, you're open?" asked Lagarde, not entirely satisfied with the answer.

"Yes. We like to use the word 'reciprocal' as opposed to " Mnuchin said, eliciting laughs from audience members, who still seemed baffled.

There also was a reason for Lagarde not to press Mnuchin too hard on the issue, unlike many journalists would do in questioning their interviewees.

Just a week ago in an interview with the Financial Times, US Commerce Secretary Wilbur Ross dismissed the warnings of US protectionism by Lagarde and others as "rubbish".

In a separate interview with the FT on April 17 after Ross' rebuttal, Mnuchin reiterated that his talk on protectionism was more about the comment, "We expect this to be two-way, free and fair trade. Particularly for people who have big surpluses with us."

"And if we can't address those issues, we reserve the right to be protectionist," he said.

On Saturday, Mnuchin indicated that the US has been talking with countries involved, and those talks have been "productive."

In the FT interview, Mnuchin said that with China, there are things that could be done quickly, things that can take 100 days, and things that require a one-year horizon. He expressed that the trade issue now enjoys more priority than the investment issue.

Mnuchin, however, did not exclude a continued negotiation of a Bilateral Investment Treaty with China. "It's definitely on the agenda of things that we'll be discussing. I think there's things we can open up, I think there's areas we can open up even without a full-blown bilateral investment agreement," he told the FT.

It has been widely reported that the Trump Cabinet internally is divided over free trade and protectionism. Trump also has reversed course on many of his campaign promises. In an April 17 Gallup poll, only 45 percent of the people agreed that Trump keeps his promises, compared with 62 percent in February.

It might be too early to make a judgment on Trump administration's nature of free trade or protectionism based on the first 100 days, but many in the audience seemingly left the talk with the feeling that their questions were unanswered.

Contact the writer at chen weihua@chinadailyusa.com