October 9, 2018 / 10:01 AM / 7 months ago

Bundesbank head says world leaders must tackle subsidy-driven trade biases

* Weidmann talks to Reuters before IMF, World Bank meetings

* Urges protection of intellectual property

* Says tariffs not the right tool for cutting U.S. trade gap

By Gernot Heller

BERLIN, Oct 9 (Reuters) - The head of Germany’s Bundesbank said world financial leaders needed to reform the global trade order to better protect intellectual property and tackle subsidy-driven distortions.

Speaking before the International Monetary Fund and World Bank meetings on Bali, Jens Weidmann said the reforms were vital to safeguard the World Trade Organization (WTO) and its principles of free, rules-based trade.

“These include particularly improving the protection of intellectual property and also tackling distortions created by state-owned companies and subsidies,” Weidmann, also a European Central Bank policymaker, told Reuters in an interview conducted by email.

WTO member states have come under pressure to reform the body since U.S. President Donald Trump, deeply critical of the global trading system, blocked the reappointment of WTO judges and imposed huge tariffs on China and other countries.

China is widely seen as the principal target of Trump’s anger, so getting it to acquiesce to tougher WTO rules on subsidies, state-owned firms and preferential treatment could be key to achieving the “shape-up” of the WTO that Trump has demanded.

The former head of China’s central bank, Zhou Xiaochuan, last month acknowledged that China could do more to tighten up its rules on illegal subsidies and intellectual property.

Weidmann said Germany’s large trade surplus, another bone of contention for Trump, was mainly the result of market decisions, energy prices and foreign exchange rates while higher German investments would barely help to reduce the U.S. trade deficit.

“A country’s current account balance does not depend so much on trade policy, but more on how much is saved and invested domestically,” Weidmann said.

Therefore, import tariffs were not an appropriate tool to reduce the U.S. trade deficit, which was rather likely to increase as a result of Washington’s expansive, pro-cyclical fiscal policies, Weidmann said. (Reporting by Gernot Heller Writing by Michael Nienaber; editing by John Stonestreet)

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