Thursday , August 16 2018
Home / Jeffrey Frankel's Blog / The “G-6 vs. 1” Summit

The “G-6 vs. 1” Summit

Summary:
June 8, 2018 —  I did an interview today as the G-7 Leaders Summit got underway in Canada. In the video at BNN Bloomberg, I said I thought that if Trump’s tariffs are met with united and calibrated retaliation, he might eventually have to back down. Here are the questions they sent me ahead of time and my responses,   – Q:  Ideally – what do you want to see come from the Group of 7 leaders’ meeting that starts today in Canada? – A: If we were truly talking about an ideal world, one would aspire to progress on the issues that the Canadian hosts plan to talk about: environment, inclusive growth, equality, etc. Closer to the real world, one would ideally see the G-7 cooperating to form a common front regarding economic issues with China (reduction of excess steel capacity & enforcement of

Topics:
Jeffrey Frankel considers the following as important: , , , , , , , ,

This could be interesting, too:

John H. Cochrane writes Trade uncertainty and investment

John H. Cochrane writes Intellectual property and China

Simon Wren-lewis writes What becomes news and why

John H. Cochrane writes Links: trade, housing, taxes

June 8, 2018 —  I did an interview today as the G-7 Leaders Summit got underway in Canada.

In the video at BNN Bloomberg, I said I thought that if Trump’s tariffs are met with united and calibrated retaliation, he might eventually have to back down.

Here are the questions they sent me ahead of time and my responses,  

– Q:  Ideally – what do you want to see come from the Group of 7 leaders’ meeting that starts today in Canada?

– A:

  • If we were truly talking about an ideal world, one would aspire to progress on the issues that the Canadian hosts plan to talk about: environment, inclusive growth, equality, etc.
  • Closer to the real world, one would ideally see the G-7 cooperating to form a common front regarding economic issues with China (reduction of excess steel capacity & enforcement of IPRs) or geopolitical issues (esp. vis-a-vis North Korea & Iran & Russia).
  • This meeting will accomplish no such G-7 cooperation, and to the contrary will almost certainly go down in history as the “G-6 vs. 1” meeting.

– Q: Do you expect anything meaningful to come from this G7 summit considering the hardline Trump has said he’ll take on trade?

– A:

  • It’s no longer just talk; the trade war is on.
  • The best thing that could come out of the meeting at this point is a clear (though polite) position on the part of the other 6 countries that they will not accept WTO-illegal tariffs by the US, but rather will retaliate in calibrated measure and within the WTO framework.
  • In the past, any differences among the G-7 have been swept under the rug for the purpose of the final communique. This year will almost certainly be different. Especially because Trump is apparently planning on leaving Saturday morning, well before the end, there may be some sort of communique criticizing US tariffs.  It is unprecedented to single out a particular G-7 member, let alone the country that has hitherto been the de facto leader

– Q: How will the tariffs on various US imports (especially steel and aluminum) backfire on the US? How long does it take for the impact to show through on the US economy?

– A:

  • As PM Trudeau says, Trump’s “unacceptable actions are going to harm his own citizens”. It won’t take long for negative effects to begin to show up:
  • Higher costs for the US industries (like autos) that use steel and aluminum as inputs.
  • Higher cost of living for consumers.
  • Loss of exports, especially where foreign trading partners target retaliation, for example Midwestern farmers.
  • Steel and aluminum imports in themselves are a small enough part of the US economy that the negative effects won’t show up large in GDP or inflation. But this is just the tip of the iceberg.  Much larger effects will probably follow, especially if (as is very possible):
    • there are future rounds of retaliation on both sides;
    • the US stock market falls;
    • Trump’s actions permanently undermine the rule of law, international cooperation, and global progress toward democracy, liberal trading system, etc. It is to preserve this system for the longer term, after Trump is gone, that the G-6 should take a principled stand now, on the tariffs.

– Q: Given Trump’s tenacity, is there any reason to think he might back down on tariffs in the face of a united front?

– A:

  • First: There isn’t a good alternative. As various G-7 leaders have recently learned, he can’t be easily bought off by flattery or even concessions.
  • But, yes, there are some reasons to think that eventually he might back down.
    • Both China and North Korea have stood up to him and gotten reversals of positions on key issues.
      • China: status of Taiwan; ZTE
      • North Korea: rejection of the “Libya model” for de-nuclearization.
    • As Macron says “The six other countries of the G7 represent a market which is bigger than the American market.” Further they have international law on their side.
    • The politically important Midwestern states are very worried about the effects of trade war on their exports.
      • Midwestern voters could turn against Republican Senators and Congressmen in the elections this November.
      • Some Republican Senators are increasingly prepared to oppose him on trade (e.g., Bob Corker’s move to limit Section 232 powers).
      • Trump will become increasingly aware of adverse implications for his own survival.
Jeffrey Frankel
Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government, previously served as a member of President Bill Clinton’s Council of Economic Advisers. He directs the Program in International Finance and Macroeconomics at the US National Bureau of Economic Research, where he is a member of the Business Cycle Dating Committee, the official US arbiter of recession and recovery.

Leave a Reply

Your email address will not be published. Required fields are marked *