G7 summit: Trump shows that when it comes to trade, he has got no friends

G7 meeting photo Trump Merkel 2018 trade
The 44th G7 summit was held 8-9 June 2018 in La Malbaie, Quebec, Canada.

US President Trump might be concentrating on his meeting with reclusive North Korean dictator Kim Jong-un but behind him he leaves a real diplomatic trade mess after the G7 meeting in Canada.

In an almost unprecedented development, Trump not only backed out of the final G7 communique, he started a Twitter war with Canadian Prime Minister Justin Trudeau, who he labelled “very dishonest and weak”.

That left Germany and France fuming about how Trump had destroyed trust and acted inconsistently after leaving the G7 conference early.

However, it was Prime Minister Trudeau who was singled out for special treatment, with US trade advisor Mr Peter Navarro telling Fox News: “There is a special place in hell for any leader that engages in bad faith diplomacy with President Donald J Trump and then tries to stab him in the back on the way out the door and that’s what bad-faith Justin Trudeau did with that stunt press conference, that’s what weak, dishonest Justin Trudeau did.”

Close ally and neighbour, Canada, under attack

Mr Trudeau seemed perplexed by the rocky end to the Canadian G7 conference but has claimed he didn’t say anything in the final press conference that he had not said directly to President Trump and has said Canada will remain polite and communicative but insistent in its stance against tariffs.

Nevertheless, whatever fragile consensus that was built up between the world’s leading industrialised nations behind closed doors has now been blown wide open with the final communique now effectively a “G6“ document and President Trump now back on the warpath against his own allies and threatening even higher import tariffs, this time for the sensitive automotive industry.

G7 country leaders 2018
G7 2018 meeting in session.

It makes the stakes at the North Korea conference even higher and perhaps even less predictable, given President Trump’s strongarm negotiating style and North Korea’s history as a crafty and wily negotiator that should never be underestimated.

Financial markets brace for further trade tensions

For financial markets the take away message is clear – trade tensions have heightened rather than eased as a result of the G7 conference and the world will need to get used to President Trump’s strongarm tactics compared to the usual docile and homily filled final communiques that at least show that communications channels remain open between the major powers.

As for the existing trade war over the US steel and aluminium tariffs, they will remain a point of great tension between the US and other allies such as the European Union, Canada and Mexico, with the possibility that President Trump may not have finished the trade war yet and might open up some new fronts on sensitive issues such as automotive imports.

The North American Free Trade Agreement talks between Mexico, the US and Canada, were said to be making good progress but now must be assumed to be back in limbo given that two of the participants are so publicly fighting.

None of these developments are positive for the Australian share market when it reopens on Tuesday.

If there is a positive to be drawn from the explosive end to the G7 summit, it may be that the G6 countries – Canada, France, Germany, Italy, Japan and the United Kingdom – may now present more of a united front in negotiations with the largest economy in the G7 – the United States.

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