This was unexpected. For years the joint statement coming out of the G20 meetings, and the meetings of its predecessors, has always included a paean to free trade… despite the actual domestic policies of a lot of the G20. That ended yesterday:

For many years, the United States has been the country rallying other nations to the cause of free trade and common language in the communiqués 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.

…

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. He also accused the Trump administration of not having a firm view on what it was seeking in 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.

Eventually a bit of fluff proposed by Mnuchin was added, some nonsense about “working to strengthen the contribution of trade to our economies.”

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.”

I think Schmitt is right on both counts and it is equally possible that this may exist for domestic consumption as much as it actually entails a negotiating position.

Personally, I’m in favor of free trade but I’ve also been alive long enough to know that free trade doesn’t really exist. There are two critical components that Trump needs to look at. First is reciprocity. We should not have any free trade agreement with any nation that does not have equally free trade with US politics, regardless of whether the barrier is a tariff or the government pushing the belief the the American product is dangerous and inferior. Europe and its Luddite anti-GMO regulations is a prime example of this. The second part is our own regulatory structure and tax code that penalizes innovation and success and rewards American companies for moving production overseas.

I am convinced that the current trade system is not sustainable economically and, as 2016 proved, it definitely isn’t sustainable politically.