What Trump’s spat with Trudeau means for global trade

Donald Trump and Justin Trudeau © Getty Images
Trump and Trudeau: not on a charm offensive

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“You calling me a liar, pal?”

It’s not the sort of language you’d expect to hear at a high-level conference of global political leaders.

But this weekend’s G7 meeting appears to have been an exception, with a rather more ill-tempered aftermath than we usually see from these things.

And it doesn’t bode well for global trade harmony.

Blame Canada! Trudeau and Trump square up

The leaders of the G7 countries – the US, the UK, Canada, Germany, France, Japan and Italy – had a shindig this weekend in Quebec.

The meeting took place just as US president Donald Trump has been stepping up his rhetoric – and his actions – on global trade. The US has decided to impose steel import tariffs on everyone, not just China. And it’s clear that many people in the administration think that this should just be a start.

If anyone was hoping that getting the world leaders together in a room was going to help out with any of this – well, they were disappointed.

Apparently, Trump was not on a charm offensive. He said that he wanted Russia to rejoin the G7. Maybe that’s not a bad idea, but given that relations between Russia and Europe (the UK in particular) are at a fairly obvious low point, it’s not the best way to start things off.

He was also complaining to all and sundry about the US acting to subsidise the rest of the world. “We’re like the piggy bank that everybody’s robbing.”

Anyway, they managed to hammer out a communiqué that contained a vague commitment to global trade – noting that they would all “strive to reduce tariff barriers, non-tariff barriers and subsidies” – which was apparently hugely diluted, in order to get the US to sign it.

Trump hopped on his plane. Canadian prime minister Justin Trudeau gave a press conference. He responded to a question on potential tariffs on vehicle imports, by noting that Canada wouldn’t be “pushed around”.

Trump got wind of it, and promptly pulled his signature from the communiqué, via Twitter. He also dismissed Trudeau as “very dishonest & weak”. And then, Peter Navarro, Trump’s trade adviser, told Fox News: “There’s a special place in hell for any foreign leader that engages in bad faith diplomacy with President Donald J Trump.”

(It’s quite the news clip – I recommend you watch it to get the full flavour.)

All in all, not a huge success.

Protectionism is contagious

So what’s this all about?

It’s pretty clear that Trump does not agree with the consensus that global trade is a good thing. The desire for more protectionist trade policy is not a one-off or a negotiating tool; it’s policy.

As Capital Economics notes, the various steel and aluminium tariffs already imposed are not huge in economic terms. The risk now, though, after this particularly fractious G7 meeting, is that trade war escalates, particularly between Canada and the US.

The investigation into vehicle imports will not be completed until February next year. But Trump could simply pull out of the North American Free Trade Agreement (Nafta), or escalate tensions with other countries.

What’s his motivation? It’s hard to judge. You could still go with the “3D chess” theory – that he knows what he’s doing and this is all part of a grand strategy. But unfortunately, I suspect he’s just playing the role of America’s chief executive. And it really isn’t beyond the realms of possibility that he just doesn’t like Trudeau, purely on a macho rivalry basis.

Equally, though, Trump is just part of an ongoing trend. America has been fed up with being “global policeman” for a long time now. Trump is, in effect, the logical conclusion of this simmering resentment.

So what’s the upshot?

The end of Pax Americana is one reason that defence stocks have been doing well. It’s hard to see that ending soon. The retreat of globalisation is inflationary – even if the economy slows down – which will make it a lot harder for central banks to “stimulate” the economy, even if things go pear-shaped.

Moreover, this isn’t just about one protectionist leader. There are a lot of egos out there – we’re talking politics here, after all. If everyone is slinging around insults, then taking a tougher stance becomes a vote-winning strategy. That means the chances of a genuinely dangerous global trade war – the type of spiral that eventually takes you down the road of the 1930s – is growing.

That’s the sort of scenario that we all took for granted that trade interdependence would prevent (that whole “no two countries with a McDonald’s have ever gone to war” thing – which is not true, incidentally). And yet, we can no longer dismiss it.

I’ll be looking at the whole topic in more detail in the next issue of MoneyWeek magazine, out on Friday. Subscribe now if you haven’t already.

  • AJAX

    I’ve just left a previous post on this thread that’s been flagged up as possible spam, pending approval, it’s not MW, so please approve it, as I have better ways to spend my time than typing posts out like that one for no reason.

    • AJAX

      Great, my 1st post remains in the spam folder because MW can’t be bothered to clear it, & the only other poster on this thread which is spam gets left on un-removed. This is a real incentive to bother posting comments on this site =/

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  • AAJ

    What does it say about a person that finds himself more at ease with a murderous dictator than an inoffensive Canadian …

    • Horiboyable .

      Wow you are in for a severe red pilling.

      Trump never wanted to be president, he was approached by the military and they asked him to run or they were going to take Obama out for treasonous actions. Trump only gets $1 a week so he is not doing it for the money. Trump’s presidency is a military OP. President Trump is going to remove the cabal that CONTROLS your life.

      The Mueller investigation is nothing more than a soft coupe attempt by the cabal which Hillary Clinton & Obama have been their puppets. Eighteen months Mueller has been looking for Russian collusion and Trump has never been seen with a black Russian drink in his hand. Very soon they will be rounding up these crooks, Hillary Clinton, Obama, Soros, Rothschild and many more that have infected the DOJ, FBI and the NSA.

      Have you not noticed how many congressmen and women are retiring or not seeking re-election. Have you not noticed how many CEO’s have been resigning. Wow what happened in Saudi Arabia, 30 princesses rounded up and all their money taken, next thing some young Arab is running the joint and he is letting women drive cars and go into picture theaters; one member of the cabal removed. Next thing North Korea are threatening to blow us up, next thing you know he wants to make a deal; after Trumps admin removed the cabal’s money and removed bad actors. Truth is the NK deal was done in March, today is a show for the MSM, wow what happened there then. Syria what happened there, Trump cut the money to ISIS which was partly funded by Obama’s money he had flown in on pallets to Iran. Watch the show because it is about to start, don’t forget your popcorn

      I can not wait to see Hillary and Obama in orange jumpsuits.

  • Horiboyable .

    Read my piece below.

    Nothing is as it seems. Trump has no love for the EU he knows what the cabal have done to Europe. Follow his executive orders, why are they upgrading GITMO, why is the USA under a state of emergency, why have so many military plane crashes in the last year? Why is Bannon in Italy advising the new government? Why are there so many sealed indictments? There is so much going on and I suspect Trump has told G7 that the old game is over and there will be a new honest one.

    I suspect he will bring the EU down and I do not think he has any love for the Fed. Allowing private individuals to print their own money is the craziest idea that anyone could have dreamed up. Trumps next focus is to cut the strings of the cabals puppets in Iran. Trump and Putin are on the same team and should be able to calm the middle east down.

  • Apollocreed

    Why is Trump more effective than May? Because he makes decisions that unequivocally please his supporters and totally alienate other groups. But these decisions are powerful, significant and ground-breaking.

    May, like a traditional politician, tries to please everyone and thereby fails to gain the support or respect of any group whatsoever. In addition, her “please-all” policy compromises are weak, ineffective and impotent.

    • George

      Trump is not a politician, May is.

      People like Trump start wars. Civil wars and world wars.

      People who look up to Trump and admire his strength are by definition themselves weak.