'United front' on US protectionism emerges as German resolve stiffens after G7

12 June 2018 8:53am

11 June 2018. By Joanna Sopinska and Sam Wilkin.

Donald Trump’s Parthian shot as he left this weekend’s G7 summit, insulting his host and tearing up a joint statement, looks likely to bind other world leaders more tightly in their joint response to the US president’s assault on free trade.

EU countries are ready to unanimously approve a full list of retaliatory measures this week in response to Trump's steel and aluminum duties, MLex understands. German leaders, who a few weeks ago were calling for dialog, now speak of “unity” in the face of “drastic” US measures. Canada has prepared its own tariffs against the US, in coordination with the EU and other partners including Mexico.

The coordinated response to Trump’s tariffs will hit US agriculture and industry hard when it takes effect next month. What’s less clear is whether Trump will back down as the American heartland feels the squeeze, or try to raise the stakes further with new tariffs on cars or other measures.

The other leaders of the Group of Seven, comprising the world’s biggest free-market economies, had clearly hoped the US president would soften his stance on trade at this weekend’s summit in Canada. A widely shared photograph of German Chancellor Angela Merkel and other leaders leaning over Trump, who sits with his arms crossed, captured the mood.

In the end, Trump dashed those hopes. Tweeting from Air Force One after leaving the Charlevoix summit early, he rejected a carefully crafted joint statement that called for “free, fair and mutually beneficial trade.” Then he accused Canada’s Prime Minister Justin Trudeau of being “dishonest,” and repeated a threat to introduce new tariffs on automobiles.

‘United front’

The G7’s other leaders, representing some of America’s biggest trade partners, closed ranks. French President Emmanuel Macron said Trump was facing a “united front.” In a rare rhetorical flourish, Merkel said EU leaders must “fight for our values” after Trump’s “drastic” withdrawal from the joint statement.

Germany’s hardening stance removes the last major obstacle to a strong EU response to the US tariffs. The bloc’s biggest economy had previously, behind the scenes, advocated trying to negotiate a deal — perhaps fearing the impact of any further escalation on its all-important car industry. France has consistently favored a tougher stance.

With Merkel and Macron on the same page, along with the European Commission, other EU leaders will fall into line. All 28 countries have signaled their readiness to approve the commission’s proposed retaliation in its entirety at a meeting on Thursday, MLex understands. The measures will impose tariffs on US exports to the EU worth 2.8 billion euros ($3.3 billion) annually.

Canada has likewise prepared a “dollar-for-dollar” response that will take effect on July 1, Foreign Minister Chrystia Freeland said. Mexico, India and others have also drawn up retaliatory tariffs and lodged complaints against the US at the World Trade Organization.

Furthermore, there are signs of increasing coordination in the global response. The EU tariffs, originally slated to take effect any time from June 20, are now set to go live on July 1 alongside Canada’s.

The tariff lists differ between the EU and other countries according to their own interests: There is no unified list of US goods to be targeted. But they are all calibrated to hit certain industries and certain electoral districts, in what is likely to be an attempt to bring domestic political pressure to bear on Trump.

“We coordinated very closely with the European Union, with Mexico, on our list of retaliatory measures and actions,” Freeland said.

Zero-sum diplomacy

Nonetheless, the assembly of world leaders standing up to the US stops short of a grand alliance. Japan’s Prime Minister Shinzo Abe tried at the G7 summit to persuade Trump to take a softer stance and spoke of defending free trade, but he hasn’t rebuked the president publicly nor drawn up any retaliation plan.

With only about 5 percent of its steel exports going to the US, Japan won’t be as badly hurt by the US tariffs as many other economies will. Abe might be more concerned about preserving the US security umbrella in east Asia. And Japan, like Germany, would be hit hard by any new US tariffs on cars.

But the EU, Canada and others look set to stand firm against Trump’s zero-sum approach to diplomacy.

“Sometimes I get the impression that the US president believes that only one side wins and the other loses,” Merkel said after the G7 summit. “We won’t let ourselves be taken advantage of.”