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G20 financial leaders acquiesce to U.S., drop free trade pledge

Family picture during the G20 Finance Ministers and Central Bank Governors Meeting in Baden-Baden, Germany, March 17, 2017. Front row (L-R) Governor of the Bank of France Francois Villeroy de Galhau, French Finance Minister Michel Sapin, IMF Managing Director Christine Lagarde, Zhou Xiaochuan, Governor of the People's Bank of China, Chinese Finance Minister Xiao Jie, German Bundesbank President Jens Weidmann, German Finance Minister Wolfgang Schaeuble, Federico Sturzenegger, Governor of the Central Bank of Argentina, Argentina's Treasury Minister Nicolas Dujovne, Bank of Italy Governor Ignazio Visco, Italy's Finance Minister Pier Carlo Padoan and Malta's Finance Minister Edward Scicluna. Rear row (L-R) Governor of the Bank of England Mark Carney, Britain's Chancellor of the Exchequer Philip Hammond, Bank of Japan (BOJ) Governor Haruhiko Kuroda, Japan's Finance Minister Taro Aso, Adams Kone, Tunisia's Finance Minister Lamia Zribi, Federal Reserve Chair Janet Yellen, U.S. Treasury Secretary Steve Mnuchin, Rwanda's Minister for Finance and Economic Planning Claver Gatete, Brazil's Central Bank President Ilan Goldfajn, Brazil's Finance Minister Henrique Meirelles and the President of the European Central Bank (ECB) Mario Draghi.

By Balazs Koranyi and Gernot Heller

BADEN BADEN, Germany (Reuters) - Financial leaders of the world's biggest economies dropped a pledge to keep global trade free and open, acquiescing to an increasingly protectionist United States after a two-day meeting failed to yield a compromise.

Breaking a decade-long tradition of endorsing open trade, G20 finance ministers and central bankers made only a token reference to trade in their communique on Saturday, a clear defeat for host nation Germany, which fought the new U.S. government's attempts to water down past commitments.

In the new U.S. administration's biggest clash yet with the international community, G20 finance chiefs also removed from their statement a pledge to finance the fight against climate change, an anticipated outcome after U.S. President Donald Trump called global warming a "hoax".

In a meeting that some said was at times 19 against one, the U.S. did not yield on key issues, essentially torpedoing earlier agreements as the G20 requires a consensus. Still, the dialogue was friendly and non-confrontational, leaving the door open to a future deal, officials who attended the meeting said.

"This is my first G20, so what was in the past communiqué is not necessarily relevant from my standpoint," U.S. Treasury Secretary Steven Mnuchin said in the German resort town of Baden Baden.

"I understand what the president's desire is and his policies, and I negotiated them from here," Mnuchin said. "I couldn’t be happier with the outcome."

Seeking to put "America first", Trump has already pulled out of a key trade agreement and proposed a new tax on imports, arguing that certain trade relationships need to be reworked to make them fairer for U.S. workers.

"We believe in free trade, we are in one of the largest markets in the world, we are one of the largest trading partners in the world, trade has been good for us, it has been good for other people," Mnuchin said. "Having said that, we want to re-examine certain agreements."

International trade makes up almost half of global economic output and officials said the issue could be revisited at a meeting of G20 leaders in July.

While some expressed frustration, like French Finance Minister Michel Sapin, others played down the dispute.

"It is not that we were not united," German finance minister Wolfgang Schaeuble said. "It was totally undisputed that we are against protectionism. But it is not very clear what (protectionism) means to each (minister)."

He added that some ministers did not have a full mandate to negotiate since they were not fully in charge of trade issues.

Others suggested that the G20 leaders' meeting in Hamburg this July could be the real opportunity to bring the U.S. on board.

"It is not the best meeting we had, but we avoided backtracking," EU Economic Affairs Commissioner Pierre Moscovici said. "I hope in Hamburg the wording will be different. We need it. It is the raison d’etre for the G20," Moscovici said.


CLIMATE PLEDGE DROPPED

The communique also dropped a reference, used by the G20 last year, on the readiness to finance measures against climate change as agreed in Paris in 2015, because of opposition from the United States and Saudi Arabia.

Trump has suggested global warming was a "hoax" concocted by China to hurt U.S. industry and vowed to scrap the Paris climate accord aimed at curbing greenhouse gas emissions.

Trump's administration on Thursday proposed a 31 percent cut to the Environmental Protection Agency's budget as the White House seeks to eliminate climate change programmes and trim initiatives to protect air and water quality.

Asked about climate change funding, Mick Mulvaney, Trump's budget director, said on Thursday: "We consider that to be a waste of money."

The G20 did, however, show continuity in its foreign exchange policies, using past phrases on currency markets.

"We reaffirm our previous exchange rate commitments, including that we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes," the G20 said.

Leaders also upheld their commitments to financial sector regulation, supporting the finalisation of bank rules known as Basel III, provided they do not significantly raise overall capital requirements.


(Additional reporting by Jan Strupczewski, Leika Kihara, David Lawder, Michael Nienaber and Joseph Nasr; Writing by Balazs Koranyi; Editing by Hugh Lawson/Ruth Pitchford)