G-20 to tackle US-China trade war, taxing of digital giants

Tokyo

TOP financial policymakers from the world's 20 most powerful nations gather this weekend in Japan as a protracted US-China trade war clouds the global economy with no end in sight.

G-20 finance ministers and central bankers gathering in the south-western Japanese port city of Fukuoka will also tackle the thorny conundrum of how to tax huge multinational digital firms like Google and Facebook.

Policymakers are facing an increasingly gloomy outlook as turbulence from broadening trade conflicts spills into the real economy, prompting several central banks to slash interest rates or signal looser monetary policy.

Just ahead of the meeting, the World Bank slashed its global growth forecasts for this year as confidence tumbles and investment is delayed by geopolitical headwinds, such as Britain's impending exit from the European Union.

The world economy is now expected to expand by 2.6 per cent this year, three-tenths of a percentage point lower than its January forecast, and well below the three per cent growth recorded last year, said the Global Economic Prospects report.

By a quirk of the calendar, trade ministers are also meeting the same weekend in Japan, but the finance ministers will be tackling the current tensions and their economic consequences, officials and analysts said.

Washington plans to press fellow G-20 members to reduce trade imbalances, a senior US Treasury official said, echoing US President Donald Trump's campaign to promote US exports.

The official said: "I do expect trade will be one of the topics of conversation... in terms of trying to open trade up further and reduce some of the unfair trade practices that may exist out there, as well as the impact of the assertive tariff measures that have been announced."

The discussions in Fukuoka will feed into the G-20 summit on June 28 and 29, where Mr Trump and Chinese President Xi Jinping are expected to cross swords on trade amid a spiralling pattern of tit-for-tat trade tariffs.

Kenji Yumoto, a senior executive economist at the Japan Research Institute, said any joint statement should aim to bolster fragile sentiment.

"If they issue a communique... they should show a sense of solidarity to ease concerns that are out there and prevent a deterioration in confidence," he said.

The trade war will definitely be on the table, but notoriously media-shy central bankers may be unwilling to divulge the contents of the discussions, predicted the analyst.

Tomoya Kondo, a senior economist at Daiwa Institute of Research, said that the group would probably stop short of coordinated action as it has done in the past to stem crises.

"Despite the uncertain outlook, we are not in an immediate crisis. This does not offer strong incentives for the group to issue strong messages and calls for coordinated policies," he said.

"What is expected of Japan is to make sure that President Trump won't become isolated and become more radical."

Ministers and central bankers will also wrestle with a global push to impose a unified tax policy on Internet giants that are enjoying booming sales but are criticised for not paying fair taxes.

The OECD will present ministers with a roadmap for a new tax policy, as the G-20 reportedly moves toward a tax scheme based on the amount of business a company does in a country, not where it is based.

But the US is pushing for a broader approach that may also target European and Asian multinationals involved in sectors beyond technology.

Yosuke Nakamura, a researcher at NLI Research Institute, said: "There is a broad consensus that the world's existing taxation framework must be changed to suit current conditions.

"But when it comes to specifics, it becomes difficult to find an agreement like taxing multinational firms including the GAFA", he said, referring to US-based Google, Amazon, Facebook and Apple.

"Unless you bring the US on board, you cannot have any effective changes to the global taxation framework," he added.

The G-20 will also tackle a host of other pressing economic issues such as Brexit, the Chinese economy and slowing growth in Europe. AFP