Trade and Macro-Economic Issues for International Co-Ordinational in Tense Times

This Policy Brief discusses what useful form international economic co-ordination might take, notwithstanding the tense climate witnessed in recent months. On international trade, we argue that aiming at wide-ranging negotiations or more-of- the-same trade liberalizations would be pointless under present circumstances. Instead, efforts should focus on preventing the doom loop of protectionism and retaliation, in a context where the resilience of existing institutions should not be overstated. Updating China’s status is another pressing question which should be tackled seriously, and will require political negotations. Addressing the political concerns about globalization should be another priority, and we argue that it warrants considering including in trade agreements commitments and disciplines regarding non-trade areas such as exchange rates, or social, environmental and fiscal rules. On the macroeconomic front, we point to the rising temptation to use fiscal competition to compensate for low competitiveness. The risk of such strategy is a race to the bottom which would seriously impede the capacity of governements to provide highly-needed public services and infrastructures. A working multi-lateral cooperation shall consolidate the progress achieved thanks to the OECD BEPS initiative and set up a discussion on fiscal issues. Last we call for more accomodative macroeconomic policies to support investment and boost the mild economic activity recovery observed in several countries. This Policy Brief was written as part of the research project on “Major Challenges for Global Macroeconomic Stability and the Role of the G7” in view of the Italian Presidency of the Group of Seven (G7) in 2017, conducted by the Istituto Affari Internazionali (IAI) together with a major policy think tank in each of the other G7 member countries. The project’s papers have been presented and discussed at an international conference held in Rome on 27-28 March 2017.