‘Elephant in room’ at G7 summit
The latest rupture in the international order won’t look like much to most people. “Concerns were expressed that the tariffs imposed by the United States on its friends and allies, on the grounds of national security, undermine open trade and confidence in the global economy,” Finance Minister Bill Morneau said Saturday in the official summary at the end of a three-day meeting of the Group of Seven he hosted in Whistler, B.C.
Well, you’d think, right? Besides the U.S., the G7 is made up of Japan, Germany, the United Kingdom, France, Italy and Canada. Those countries had expressed plenty of concerns about the Trump administration’s aluminum-and-steel duties by the time finance ministers and central bankers started arriving at the Fairmont Chateau Whistler on Thursday for a few days of preparatory work ahead of the leaders’ summit later this week in the Charlevoix region of Quebec. So it was obvious that Steven Mnuchin, the U.S. treasury secretary, would have a rough time in the Coast Mountains.
In fact, Morneau’s summation was rather extraordinary.
The most annoying thing about summitry is that participants try so hard to remove any hint of tension. The statements of the G7 and the Group of 20 are boiled down to a bland consensus; individual countries are almost never mentioned by name.
Morneau abandoned those norms, apparently with the backing of others.
“It has been a tense and tough G7,” Bruno Le Maire, France’s finance minister, told reporters at the end of the meetings on Saturday. “It has been far more a G6 plus one than a G7. We regret that our common work at the level of the G7 has been put at risk by the decisions taken by the American administration on trade and on tariffs.”
The members of the “G6” asked Mnuchin to communicate their “unanimous concern and disappointment” to President Donald Trump.
The group has been meeting since the mid-1970s and never has ganged up on another member quite like that, let alone the biggest and most important one. “Members continue to make progress on behalf of our citizens, but recognize that this collaboration and co-operation has been put at risk by trade actions against other members,” the statement said.
In other words, the G7 is coming apart. Does that matter? You might be surprised.
An optimistic reading of events at Whistler would be that the world’s leading economies have resisted the temptation to cut individual agreements with Trump, foiling the president’s efforts to transform a relatively free-flowing trading system into a series of bureaucratically managed arrangements with the largest economy. It’s possible that a president who sees himself as a master negotiator will accept that his current strategy is failing and change tactics.
“Charlevoix is next,” Morneau told me in an interview in Whistler when I asked if there was an end game. “We wanted to make sure the discussion around our table was crystal clear to the leaders so that debate about what to do in the face of this threat to our economic success was addressed.”
Some will roll their eyes at all of this. Those bland statements, written at five-star hotels in exclusive tourist destinations, earned the G7 a reputation as a talk shop. Certainly, Trump’s core constituency could care less about what a group of global elites thinks about their man’s approach to trade. If outfits like the G7 had done less talking over the years, and more doing, they might have avoided what has become an existential crisis for the system they built after the Second World War.
But we should keep our cynicism in check.
Finance ministers and central bankers observed in Whistler that the global economy has strengthened since their previous formal meeting a year ago, and they said the expansion “is set to persist.”
It’s been a long time since finance chiefs talked about the economic outlook with such confidence. We can debate the extent to which they should be blamed for the financial crisis that triggered the Great Recession a dec- ade ago, but there is no disputing that it was policy that stopped that calamity from turning into a depression. That co-ordinated response started at a meeting of G7 finance ministers and central bank governors in Washington in the autumn of 2008.
So one reason to keep these men and women talking to each other is to make sure they are ready for the next emergency. Stephen Poloz, the Bank of Canada governor, thinks that could come in the form of a cyber attack on the banking system. He gets asked all the time about what keeps him up at night. He often surprises his audiences by telling them that he worries most about hackers because he and other authorities know so little about what could go wrong.
If there is a group that is going to figure it out, it is the G7. It has to be; those countries no longer dominate the economy like they did a few decades ago, but they still run the international banking system. For now, hackers seem content exploiting individual financial institutions. If one day they go bigger, it will be because they found cracks in networks we rely on to send money around the world. The G7, for the most part, is responsible for those networks. And it appears they are taking that responsibility seriously.
Despite the dark overtone, Morneau insisted ministers managed some productive discussions. One of them was on cybersecurity. Officials even ran a simulation to get an idea of what might happen if malicious hackers got more ambitious. Canada’s finance minister didn’t want to talk in detail about the results, but I was left with the impression that ministers realized the system was vulnerable. “We’re going to take that back and we are going to be developing more work in that regard really quickly,” Morneau said. “All of us agreed that speed is of the essence here because we need to be prepared.”
It would be nice to think that countries could separate spats over trade from other matters. And maybe they still could rally in the face of catastrophe like they did in 2008.
But the G7 was effective then because it had established a level of trust. Trump now is straining those bonds. Le Maire said on the weekend that the U.S. had “days,” and maybe only “hours,” to keep the situation from getting worse. As the finance ministers wrapped up in Whistler, the president published a rambling tweet about the U.S. getting screwed by “stupid trade.” Unhelpful.
“What I said to the group is that we should keep plowing forward to make really important strides on the things that are on the table,” Morneau said in the interview. “But when there is a big elephant in the room, and we’re all concerned we are going to have economic harm as a result of this action, it kind of throws into question how worthwhile those other things are.”