Treasury Secretary Steven Mnuchin received an earful from global finance chiefs Thursday after the Trump administration imposed steel and aluminum duties that sparked swift trade responses.
Canadian Finance Minister Bill Morneau acknowledged that trade has taken center stage at a meeting of finance ministers and central bankers from the G-7 nations in a Canadian ski resort near Vancouver. On his arrival, German Finance Minister Olaf Scholz said the U.S. levies on imported metals from the European Union, Mexico and Canada are probably illegal.
“The decision by the U.S. government to unilaterally implement tariffs is wrong, and—from my point of view—also illegal,’’ Scholz told reporters ahead of his talk with Mnuchin. “We have clear rules, which are determined at the international level, and this is a breach of those rules.”
Canada and the European Union have said they will take immediate steps to retaliate, with Canada imposing tariffs on $12.8 billion of U.S. goods, ranging from steel to whiskey and maple syrup. The Trump administration said it’s imposing tariffs on national security grounds.
Hijacks Summit
The trade wars are hijacking a summit that was initially seen as an opportunity to tout the successes of the global economic upswing, and severely testing the resiliency of the Western economic alliance represented by the G-7. The IMF projects the world economy will grow this year and next at its fastest pace since 2011.
“I don’t want to kid you, we will need to talk about this first and foremost,” said Morneau, who is chairing the meetings beginning with a dinner Thursday in Whistler, British Columbia.
“We think it’s absurd that Canada is considered in any way a security risk, so that will be very clearly stated by me,” said Morneau, who attended Mnuchin’s wedding last year and said he considers the Treasury Secretary a friend. “I have every expectation that our other allies around the table will express the same sentiment.”
Mnuchin held a string of bilaterals in the first few hours after his arrival in Whistler, meeting individually with Japan’s Taro Aso, Scholz and Morneau. A Treasury Department readout of the Aso meeting made no mention of trade coming up in the discussions.
“Of course protectionism is undesirable,” Bank of Japan Governor Haruhiko Kuroda said in Whistler. “I hope we can keep talking about it so that this doesn’t get out of hand.”
In imposing the tariffs, Trump invoked a seldom-used section of a 1960s trade law that allows him to erect trade barriers when imports imperil national security. Trump in March imposed 25 percent duties on imported steel and 10 percent on aluminum, but he gave temporary reprieve to a handful of allies for further talks to take place.
The security designation has been particularly grating, with Scholz calling the move “spurious.”
“We’ll always be ready to talk about reaching common agreements on trade policy but that’s only possible if unilaterally implemented tariffs are lifted,’’ Scholz said. “In the world we live in, it’s right to focus on a rules-based, free trade system. Protective tariffs don’t lead to prosperity, for no one.’’
The finance ministers, along with their central bankers, will kick off the official part of the meetings with dinner Thursday, and hold talks all day Friday and in the morning on Saturday. Mnuchin is scheduled to speak to the media on Saturday afternoon after the meeting ends.
Frictions in Whistler this weekend could foreshadow even more high-drama at a G-7 leaders’ summit next week in Quebec that Trump will attend.
Things are already getting nasty. At a separate press conference in Ottawa, Prime Minister Justin Trudeau revealed that Trump refused a face-to-face meeting request—through Vice President Mike Pence as intermediary—unless the Canadians made a key concession in negotiations for a new North American Free Trade Agreement.
Lost on Trump
Jean-Claude Juncker, head of the European Commission, said in a speech Thursday that “whenever I’m thinking about Trump, I’m lost.”
While trade is front and center, the G-7 officials will also need to deal with other potential menaces to the global economy, starting with the Italian political crisis.
The days leading up to the meeting have seen the political storm in Italy rekindle memories of the last euro crisis. While the prospects of fresh elections are fading with the formation of a new government—which faces votes of confidence next week—Italy’s new populist administration has a program for fiscal expansion that poses a challenge to European rules.
Investors have also been on edge in recent weeks over the prospects of emerging markets—with Argentina and Turkey at the center of the rout. Argentina is in talks with a the IMF on a credit line or loan that would help the country halt a run on its currency.
The catalyst of much of the recent turmoil has been tightening U.S. monetary policy, and the weekend’s meeting is the first official appearance by Federal Reserve Chair Jerome Powell at a G-7 summit. The G-7 central bank officials will meet separately from finance ministers on Friday to discuss, among things, how uncertainty is factoring into monetary policy.
Other themes on the official G-7 agenda are development finance, empowering women, cyber risks to the global financial system, international tax cooperation and the impact of technological change.
