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Trade Tensions Risk Undermining the G-7

Trade Tensions Risk Undermining the G-7

Saturday, 9 June, 2018 - 07:15
Pity the participants in the Group of Seven meeting. The summit, which has been a collaborative gathering for like-minded countries for years, risks being dominated more by its divisions than by achievements.

The leaders gathering in Canada face a stark choice in organizing their discussions. Should they focus on the trade issues that are central to the health of the global economy, even though that topic would most likely pit the US against the six other countries? That, in turn, could undermine progress on other key global challenges. Or should the US's partners aim for progress on those other issues by accommodating America’s unilateral approach to making international trade fairer?

It's not an easy choice.

The risk of a steady slide toward a global trade war, accelerated by the recent US tariffs and retaliatory steps by others, could undermine a pickup in global growth that is already being challenged by a growing set of domestic factors. One consequence is to expose underlying domestic economic and financial vulnerabilities, and the threat of capital outflows (Brazil). Governments, companies and investors are increasingly forced to play a game of whack-a-mole in response to disruptions including Italy's near financial meltdown and currency breakdowns in several emerging countries.

The re-establishment of a more collaborative approach to trade negotiations would be an important step in reducing the risks to global economic growth and prosperity. That is why it would be short-sighted of G-7 leaders to set aside trade for the sake of a more harmonious summit. Moreover, the gathering provides a particularly good forum for putting in place a cooperative process. After all, every member has a legitimate concern about China’s continued use of non-tariff barriers such as joint-venture requirements and with its treatment of intellectual property.

A collaborative strategy for trade negotiations could also provide the foundation for much-needed global efforts to modernize existing agreements. Many of the pacts were reached when domestic and global economies were functioning very differently than they are today. These agreements haven't fully adjusted to domestic structural changes, the impact of technology and global economic and financial realignments.

At the same time, maintaining trade as a central part of the agenda carries considerable risks. If the topic isn't handled skillfully, the US could find itself isolated and aggravated, which would undermine the summit’s overall progress. Besides, there are a lot of other issues to discuss, including the US-North Korea meeting in Singapore next week, the consequences of America's withdrawal from the Iran deal, the situation in the Middle East, migration and the plight of refugees, and the need for a more coordinated approach to the growing impact of Big Tech (especially when it comes to data-privacy issues and artificial intelligence). And that is far from a complete list.

The mishandling of trade could easily tip the G-7 into a blame game, instead of making the summit a forum for productive discussion of the issues cited above. Finger-pointing at US protectionism would be countered by complaints that the six other countries are not doing enough to promote economic growth at home. The US almost certainly has at the ready a list of structural impediments to growth in Europe and Japan that can and should be alleviated by sustained policy implementation.

Not long ago the major challenge facing a united G-7 was the erosion in its ability to inform, influence and deliver superior global economic outcomes. Then, it was surpassed in importance and attention by the Group of 20. Now, the G-7 faces the added challenge of maintaining the operational coherence to deal with issues that are mainly under its preview.

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