End game

Leaders of the Group of Seven nations are set to meet in Charlevoix, Quebec on June 8/9 for a two-day summit – their first gathering since the United States launched tariffs on steel and aluminium imports that affect Canada, Mexico and the European Union, among other exporters.

President Donald Trump will be “sticking to his guns” on issues such as trade, according to Larry Kudlow, his top economic adviser, who addressed reporters in Washington earlier this week. Trump tweeted yesterday that he would use the summit to “fight for our country on trade.”

Canadian Prime Minister Justin Trudeau, the summit host, and British Prime Minister Theresa May are among the participants who have criticised US tariffs. The G7 also includes Japan, Italy, France and Germany. The European Union is represented by European Council President Donald Tusk and European Commission President Jean-Claude Juncker.

What is the Group of Seven nations, if that club of like-minded countries stops being of like mind? Trump is pulling the United States towards protectionism and self-interest. In reality, American economic dominance means the G7 talking shop depends heavily on a G1. Without consensus, it might as well be a G-zero.

The annual gathering of leaders of the G7 has tended to produce bland statements of the developed-world consensus. Last year the strain of achieving even that showed in a watered-down set of pledges. The United States soon began to tear them up, removing itself from the Paris climate accord within a week of the meeting in Taormina, Italy.

Trump’s subsequent trade barriers against allies like Mexico, Canada and Europe make a mockery of the promise to “keep our markets open and to fight protectionism.” In advance of this year’s two-day summit beginning on Friday, Trump has also broken ranks with allies in abandoning the nuclear deal with Iran championed by his predecessor.

The US President sees the trip north as a distraction from more pressing bilateral meetings, the Washington Post reported on Thursday. In a sense, he has a point. Rank the G7 countries by objective measures of global clout – GDP, population or exports, say – and Italy would not be in the top seven while China would. The idea that the group is a forum for overcoming real differences was undermined by the decision to eject Russia in 2014. That kind of purpose now resides more credibly in the broader G20, and in bilateral discussions between China and the United States.

The other six G7-ers look relatively powerless. Their companies must do US bidding or risk being blocked from American markets and dollar-denominated trade. The greenback is still around 60% of global central bank currency reserves, and the United States is the biggest single-country goods export market for Canada, Japan, Britain and the European Union.

If the other leaders can’t change Trump’s mind, they might be better off setting the G7 aside.

Alan McQuaid (8/6/18)
Economist