An utter debacle in Quebec
It could herald the beginning of a trade war, maybe even the collapse of the G7 alliance
For all their pomp, most multilateral summits are boring and of little consequence. I once spoke to a [US] State Department official who had a role in putting these meetings together; he described his job as “policing the nuances”, which gives you an idea about how much is normally at stake.
Occasionally, however, such meetings do have real consequences, good or bad. The 2009 G20 summit, at which nations agreed to provide economic stimulus and loans to troubled countries in the face of the financial crisis, played at least some role in helping the world avoid a full replay of the 1930s. The 2010 summit, by contrast, effectively endorsed a turn to austerity that significantly delayed recovery and, arguably, partially set the stage for the rise of political extremism.
Still, there has never been a disaster like the G7 meeting that just took place. It could herald the beginning of a trade war, maybe even the collapse of the Western alliance. At the very least it will damage America’s reputation as a reliable ally for decades to come; even if US President Donald Trump eventually departs the scene in disgrace, the fact that someone like him could come to power in the first place will always be in the back of everyone’s mind.
What went down in Quebec? I’m already seeing headlines to the effect that Trump took a belligerent “America first” position, demanding big concessions from our allies, which would have been bad. But the reality was much worse.
He didn’t put America first. Russia first would be a better description. And he didn’t demand drastic policy changes from our allies; he demanded that they stop doing bad things they aren’t doing. This wasn’t a tough stance on behalf of American interests, it was a declaration of ignorance and policy insanity. Trump started with a call for readmitting Russia to the group, which makes no sense at all. The truth is that Russia, whose gross domestic product is about the same size as Spain’s and quite a bit smaller than Brazil’s, was always a ringer in what was meant to be a group of major economies. It was brought in for strategic reasons, and kicked out when it invaded Ukraine. There is no possible justification for bringing it back, other than whatever hold Russian President Vladimir Putin has on Trump personally.
‘Ridiculous and unacceptable’
Then Trump demanded that the other G7 members remove their “ridiculous and unacceptable” tariffs on US goods — which would be hard for them to do, because their actual tariff rates are very low. The European Union, for example, levies an average tariff of only 3 per cent on US goods. Who says so? The US government’s own guide to exporters.
True, there are some particular sectors where each country imposes special barriers to trade. Yes, Canada imposes high tariffs on certain dairy products. But it’s hard to make the case that these special cases are any worse than, say, the 25 per cent tariff the US still imposes on light trucks. The overall picture is that all the G7 members have very open markets.
So what on earth was Trump even talking about? His trade advisers have repeatedly claimed that value-added taxes, which play an important role in many countries, are a form of unfair trade protection. But this is sheer ignorance: VATs don’t convey any competitive advantage — they’re just a way of implementing a sales tax — which is why they’re legal under the World Trade Organisation. And the rest of the world isn’t going to change its whole fiscal system because the US president chooses to listen to advisers who don’t understand anything.
Actually, though, Trump might not even have been thinking about VATs. He may just have been ranting. After all, he goes on and on about other vast evils that don’t exist, like a huge wave of violent crime committed by unauthorised immigrants (who then voted in the millions for Hillary Clinton.)
Was there any strategy behind Trump’s behaviour? Well, it was pretty much exactly what he would have done if he really is Putin’s puppet: Yelling at friendly nations about sins they aren’t committing won’t bring back American jobs, but it’s exactly what someone who does want to break up the Western alliance would like to see.
Alternatively, maybe he was just acting out because he couldn’t stand having to spend hours with powerful people who will neither flatter him nor bribe him by throwing money at his family businesses — people who, in fact, didn’t try very hard to hide the contempt they feel for the man leading what is still, for the moment, a great power.
Whatever really happened, this was an utter, humiliating debacle. And we all know how Trump responds to humiliation. You really have to wonder what comes next. One thing’s for sure: It won’t be good. ■ Paul Krugman is a Nobel Prize-winning economist and distinguished professor in the Graduate Centre Economics PhD programme and distinguished scholar at the Luxembourg Income Study Centre at the City University of New York.
The annual gathering of G7 leaders normally represents an opportunity for the leaders of the United States, the United Kingdom, Canada, Germany, France, Italy and Japan to show a united front when it comes to pressing economic matters and geopolitical concerns that affect the world’s leading economies. Clearly, given the discord that was evident between the non-US members and the administration in Washington and their failure to agree on a joint communique, the leading economies set on a path of tariff conflict and countermeasures.
Certainly, US President Donald Trump has maintained a consistent stance on protecting traditional US industries, steel and aluminium and the automotive sector from his earliest days on the campaign trail. True to his word – and with the backing of voters in the rust-belt states of Michigan, Pennsylvania and Ohio who supported him by the millions – Trump has now taken measures to protect those elements. If anything, the other G6 leaders should have been aware that tariffs were coming.
It is clear that we are now facing a period in which protectionism and tariffs will be the norm, and that the prolonged period of free trade and far-reaching commercial deals will no longer be the norm. For now, the liberal thought process of globalisation is temporarily facing a roadblock.
While there certainly appears to be a disdain among the G6 for Washington’s protectionist attitude, there is a reality that some of those in the G7 should remember. Because of the sustained period of globalisation, where corporations grew beyond their national boundaries and became truly multinational, large companies in the G6 benefited greatly in the US – and are ideally placed now to still benefit within the confines of those tariffs. Italy-based Fiat now owns Chrysler, one of the US ‘Big Three’ automakers. Japanbased Toyota has plants in the US as well as the UK, and Germanyheadquartered Daimler has Mercedes plants in the US south. In essence, all will continue to profit while operating in the new reality of tariffs and counter-tariffs.
Yes, the normal genteel settings of the G7 gathering were unsettled perhaps by the confrontational tone, but it is not the end of the world. When good friends gather, there ought to be room for disagreements. At the end of the day, all will remain strong allies in the face of other life-and-death threats. Besides, all the parties at the Quebec gathering have access to the World Trade Organisation to dispute this temporary resetting of tariffs.