It ought to be good news that leaders from the Group of Seven are gathering for a retreat on the Bay of Biscay as the global economy slows, trade wars escalate and major economies like Germany slide toward recession.
But the allies are so divided that they may squander the chance to find a solution. Any hope for progress was complicated Friday with China’s new tariffs on U.S. goods, a central banker pushing for a rate cut and France threatening a regional trade deal over climate.
At any other time in history, the expectation from such a summit would be for a coordinated response to loosen fiscal purse strings and walk away from protectionism -- an approach that came out of similar meetings called to respond to the far more dire global financial crisis a decade ago.
This weekend, as France’s Emmanuel Macron hosts leaders including the U.K.’s new prime minister, Boris Johnson, along with U.S. President Donald Trump, disagreements over everything from Brexit to the future of the global trading system likely will stand in the way of unified solutions. China on Friday roiled the summit by imposing additional tariffs on $75 billion of U.S. goods in retaliation for Trump’s planned levies on Chinese imports.
The best economic hope for the meetings in the Atlantic port city of Biarritz may be that divisions don’t get any worse, and that central bankers conducting their own retreat some 5,000 miles away in Jackson Hole, Wyoming, save the day.
Driving that reality is Trump’s world view, which isn’t showing any signs of changing.
The broad consensus from economists and other G-7 leaders is that the global economy would benefit most from an end to Trump’s trade wars. But the U.S. president has dismissed accusations that his tariff assault on China and threats to impose duties on Europe’s auto industry are contributing to any slowdown.
Currency Wars
Moreover, rather than seeking harmony, Trump is threatening to turn his trade wars into currency wars.
“Fight or go home!” Trump told the Federal Reserve in a tweet Thursday bemoaning negative yields on German bonds and a strong dollar that he views increasingly as a threat to U.S. growth.
Ahead of this weekend’s meeting, Trump administration officials insisted the U.S. economy and the president’s agenda of tax cuts, deregulation and cracking down on unfair trade ought to be envied rather than scorned, particularly in Europe where growth has slowed.