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Finance & Innovation

The US Just Got the G20 to Do Something Really Bad for the World's Poor

The 770 million people living in extreme poverty in the world today just suffered a serious blow.

Over the weekend, 20 of the world’s wealthiest economies came together for a routine meeting on ways to improve the world economy. But the results of this G20 meeting were anything but routine.

The United States, represented by Treasury Secretary Steven Mnuchin and acting at the behest of President Donald Trump, convinced the other countries to stop outwardly supporting free trade in a statement at the conclusion of the conference, according to The Hill.

In other words, the most economically successful countries in the world stopped supporting one of the most effective tools for ending extreme poverty in history.

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At the conference, Germany tried to persuade the US to include language supporting free trade in a joint statement that would be released at the end of the conference but Mnuchin refused, according to The Washington Post. He suggested instead vague language about a commitment to "strengthen the contribution of trade.”

Dropping language from an official document may not seem significant, but it signals a real change amid global powers that could undo decades of progress in lifting the extreme poor out of poverty (Mnuchin also convinced the G20 to drop language encouraging countries to finance climate change programs).

Trade is responsible for cutting poverty, narrowing inequality, and raising incomes around the world, according to the World Bank.

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Protectionism — where countries want to shield their own industries from competition — on the other hand, will “blunt the engine of growth that has delivered prosperity for millions around the world,” the World Bank says. Last year the G20’s statement included the pledge, “We will resist all forms of protectionism.”

Trump campaigned on the idea of re-negotiating trade agreements because they were unfair to the United States. Dropping out of agreements like the North American Free Trade Agreement could have devastating effects on the poor in Mexico, El Salvador, and Honduras, according to the bank.

During the years between 1988 and 2013, during rapid globalization, global poverty was cut by more than half and the income of the world’s poorest increased by close to 50%. Now, developing countries make up nearly half of all world trade.

How does trade benefit the poor? In a number of ways: when developing countries begin to trade with developed ones like the US, the number and quality of jobs available in that country increase exponentially. Economic growth and productivity both increase. More people in the country can get better jobs, better homes, and better food.

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Of course, as the fortunes of the world’s poorest rose, world trade had somewhat negative effects on other groups. Inequality in the US increased slightly during a similar period (1990 to 2010), but fell slightly in other Western countries like Denmark. The World Bank attributes the difference in outcomes to whether Western governments have job training and other labor assistance programs to help retrain workers as industries shift.

But Trump successfully campaigned by promising workers in the US who lost jobs to trade that he would bring the jobs back. It remains to be seen whether Trump can deliver on that promise.

One thing that is certain is that, as the World Bank says, “a retreat from global integration would erode these gains, especially in developing countries.”