FUKUOKA, Japan:
Global trade tensions threaten an expected pick-up in economic growth this year
and in 2020, a draft communique by the world's financial leaders showed
yesterday, but the policymakers were divided on whether the need to resolve
them was "pressing". Finance ministers and central bank governors of
the world's 20 biggest economies, the G20, are meeting in the southern Japanese
city of Fukuoka to discuss the global economy amid rising trade tensions
between China and the United States.

"Global
growth appears to be stabilizing and is generally projected to pick up
moderately later this year and into 2020," the draft G20 communique, seen
by Reuters, said. "However ... risks remain tilted to the downside. These
include, in particular, intensified trade and geo-political tensions,"
said the draft communique, which may yet change before it is released today.

The draft
statement, to which all the G20 financial leaders have to agree, contains a sentence
in square brackets-which means it was not yet agreed-that trade and investment
were important engines of growth. "We reaffirm our leaders' conclusions on
trade from the Buenos Aires Summit and recognize the pressing need to resolve
trade tensions," the sentence still under discussion said.

If the sentence
is dropped from the final statement, it would mean rowing back on an agreement
reached by G20 leaders last year in Argentina that while the existing
international trade system-the World Trade Organization-needs improvement, it
helps world growth and should be fixed. G20 leaders also agreed last December
to review the WTO reform in Osaka later this month.

But progress in
overhauling the WTO, which still functions under rules created a quarter of a
century ago, has been slow, partly because of US actions to block appellate
judge appointments. A Japanese finance ministry official who attended
yesterday's G20 session told reporters that most of the group's members voiced
concern that escalating trade tensions posed a huge downside risk for the
global economy.

"With so
many countries expressing concern over the fallout (from the trade tensions),
there seems to be some momentum to reflect that in the communique. But there's
no conclusion yet" on the language of trade, the official told reporters.
Relations between the United States and China have deteriorated since US
President Donald Trump in early May accused Beijing of reneging on commitments
to change its ways of doing business with the rest of the world. Washington
raised tariffs on Chinese goods and threatened new levies, while Beijing has
retaliated.

'Great outcome'

US Treasury
Secretary Steven Mnuchin, who will hold talks with China's Yi Gang on the
sidelines of the G20 gathering, said the United States wants free, fair and
balanced trade with China, in part to close a gaping US trade deficit with
China.

But the United
States is prepared to levy tariffs on virtually all remaining Chinese imports
if the "right deal" cannot be reached to satisfy US demands for
better Chinese protections of intellectual property and curbs to technology
transfers and state subsidies, Mnuchin said. "If we can't have that, the
end result will be that my expectation is that many companies will move their
production out of China to other locations," due to tariffs, Mnuchin said.

The treasury
secretary said he did not believe that the current trade tensions were harming
the global economy, one of the key topics being discussed by G20 officials in
Fukuoka.  "So I don't think in any
way that the slowdown you are seeing in parts of the world are the result of
trade tensions at the moment," he said.

Nevertheless, if
a deal were found, it would be a boon to the global economy as a whole, he
predicted. "People talk about the economic risk of trade wars... people
should be even more focused on the benefits of having a great trade agreement
and how that creates economic opportunities in both economies, especially for a
growing middle-class in China," he said. The potential economic benefits
for China were "part of the reason I don't understand why they went
backwards because I think this could be a great outcome for them".

He said his
scheduled meeting with People's Bank of China Governor Yi Gang will not be a
"negotiating meeting" on trade issues, reinforcing the view there
will be little breakthrough in the row between the world's two largest
economies.

He added that any
major progress will rest with Trump's expected meeting with Chinese President
Xi Jinping at a G20 leaders' summit late this month. In a rare positive
development, the US administration said it will put off imposing tariffs
against Mexico after the two countries reached a deal to contain the migration
of immigrants crossing the southern US border. "It's a very good outcome
not just for the United States and Mexico, but for the global economy,"
Bank of Japan Governor Haruhiko Kuroda told reporters. - Agencies