Finance chiefs of the Group of 20 major economies meeting in the Japanese city of Fukuoka debated Saturday over how to revise tax systems to ensure big companies pay their fair share and support economies as global growth slows.
One aim is to prevent a “race to the bottom” by countries trying to lure companies by offering unsustainably and unfairly low tax rates as an incentive.
Ensuring governments capture a fair share of profits from the massive growth of businesses like Facebook and Amazon has grown in importance over the many years the G-20 finance chiefs have been debating reforms aimed at preventing tax evasion and modernizing policies, as financial markets and businesses have been transformed by technology.
“Everyone, we are now facing a turning point. This could be the biggest reform of the long established international framework in over 100 years,” Japanese Finance Minister Taro Aso told the group.
While the officials from both wealthy and developing nations differed over some details, they agreed on the need to get the job done.
“It sounds like we have a strong consensus, and now we deal with the technicalities of how we turn this into reality,” U.S. Treasury Secretary Steven Mnuchin said Saturday.
The talks in this bustling port city come just weeks ahead of the June 28-29 summit of G-20 leaders in Osaka, Japan, where President Donald Trump and his Chinese counterpart Xi Jinping are due to meet and possibly work on resolving their bruising standoff over trade and technology.
Mnuchin has been heading trade talks with Beijing along with U.S. Trade Representative Robert Lighthizer. He was due to meet with Yi Gang, governor of China’s central bank, in Fukuoka. It was unclear if their meeting might lead to a restart of those talks after weeks of stalemate.
Concern over the potential blow to the world economy from the battle of wills between the two biggest economies has deepened as the Trump administration prepares to expand retaliatory tariff hikes of up to 25% to another $300 billion of Chinese products.
Meanwhile, after a flurry of negotiations, Trump said in a tweet that he would refrain from imposing 5% tariffs on products from Mexico after it “agreed to take strong measures” to stem the flow of Central American migrants into the United States.
“I am pleased to inform you that The United States of America has reached a signed agreement with Mexico,” Trump tweeted Friday night, saying the “tariffs scheduled to be implemented by the U.S. on Monday, against Mexico, are hereby indefinitely suspended.”
The Trump administration began slapping tariffs on imports of Chinese goods nearly a year ago, accusing Beijing of resorting to predatory tactics to give Chinese companies an edge in advanced technologies such as artificial intelligence, robotics and electric vehicles. These tactics, the U.S. contends, include hacking into U.S. companies’ computers to steal trade secrets, forcing foreign companies to hand over sensitive technology in exchange for access to the Chinese market and unfairly subsidizing Chinese tech firms.
Trump has also complained repeatedly about America’s huge trade deficit with China — a record $379 billion last year — which he blames on weak and naive negotiating by previous U.S. administrations.
The United States now is imposing 25% taxes on $250 billion in Chinese goods. Beijing has counterpunched by targeting $110 billion worth of American products, focusing on farm goods such as soybeans in a deliberate effort to inflict pain on Trump supporters in the U.S. heartland.
While the tariffs have taken a minor toll on the overall U.S. economy, the uncertainty and slowing demand are rippling across the globe. Earlier this week, the World Bank downgraded its forecast for the global economy in light of trade conflicts, financial strains and unexpectedly sharp slowdowns in wealthier countries.
The weakness has prompted central banks, most recently in Australia and India, to slash interest rates to fend off recession.
A report Friday of a sharp pullback in U.S. hiring for May intensified fears that the economy has weakened and that many employers have grown nervous, in part from trade conflicts. Yet the stock market soared and bond yields fell because it raised hopes that the Federal Reserve might cut interest rates in the coming months, perhaps as early as July, to support the economy.
Japan, hosting the G-20 for the first time since it was founded in 1999, has plumbed the limits of that strategy. The Bank of Japan’s policy interest rate has been at minus 0.1% for years, to keep credit cheap, supporting a modest pace of expansion.
As trade conflicts percolate and leaders come and go, the finance chiefs have carried on chipping away at financial reforms and other perennial issues.
Some European members of the G-20, especially, want to see minimum corporate tax rates for big multinationals. Mnuchin said he disagreed with details of some of the proposals but not with the need for action.
“The world has evolved very quickly with new business models,” he said. “If we’re going to fix this we need it to work for the next 10 years as well.”
The finance leaders are also discussing the issue of how developing countries are handling debts incurred through major construction projects, efforts to combat money laundering and to prevent terrorist groups from using cybercurrencies as a source of funding.
They are likely to issue a joint communique to be endorsed at the G-20 summit in Osaka.
SOURCE: ELAINE KURTENBACH, AP