Donald Trump will arrive in Quebec City later Friday for a two-day G-7 meeting that promises to intensify divisions between the Washington and the world's biggest economies as leaders round on the President for his unilateral approach to trade, security and climate change issues since taking office last year.
Trump himself appeared to lay the groundwork for a disappointing summit, with the White House announcing his early departure on Saturday -- prior to the traditional release of a formal communique outlining a consensus on the discussions -- and the President lashing out at his fellow leaders, including host Prime Minister Justin Trudeau, for what he has called unfair tariff barriers and an "indignant" approach to trade negotiations, even though the U.S. had an $8.4 billion surplus with its northern neighbour last year.
Looking forward to straightening out unfair Trade Deals with the G-7 countries. If it doesn't happen, we come out even better!— Donald J. Trump (@realDonaldTrump) June 8, 2018
"Divisions between the US and the rest of the G7 member states are growing in response to US tariffs, with French President Emmanuel Macron threatening not to sign the joint statement if there's no progress on this issue," said ING strategist Petr Krpata. "If there is no clear agreement and differences widen further, this is likely to weigh on risk assets on Monday, as the threat of a global trade war escalates."
The pre-summit tensions hit global risk sentiment Friday, with Asia stocks falling 1.4% and European shares sliding 0.6% as investors ploughed cash into safe-have German bunds, taking 10-year yields 7 basis points lower to 0.41%, and the U.S. dollar, which rose 0.23% against a basket of six global currencies to trade a one-week high of 93.64.
Trump's frustration with the world's reaction to his decision to apply a 25% tariff on U.S. steel imports, under the guise of national security concerns, was evident in his overnight Tweets, but also reflected in data from China today that showed that country's trade surplus continues to advance at a record pace despite Washington's efforts to reduce it.
Official customs data showed the world's second-largest economy grew its U.S. exports by 11.6% last month, ahead of the 11.4% growth in imports, taking the year-to-date surplus to $104.85 billion, more than $12 billion ahead of last year's record pace.
And with France's Macron suggesting the six remaining members of the G-7 may sign a joint declaration that challenges the President's moves on tariffs, his withdraw from the Paris Accord on climate change and a multi-lateral nuclear deal with Iran, it comes as little surprise that Trump's staff have said he'll head to Singapore on Saturday in order to prepare for Tuesday's summit with North Korean leader Kim Jong Un.
The American President may not mind being isolated, but neither do we mind signing a 6 country agreement if need be. Because these 6 countries represent values, they represent an economic market which has the weight of history behind it and which is now a true international force https://t.co/UA86fcjozs— Emmanuel Macron (@EmmanuelMacron) June 7, 2018
Should the summit produce such an extraordinary division among the world's biggest economies, it will not bode well for global trade prospects into the second half of the year, as the European Union lines-up its response to steel tariffs with levies on specific American-made goods and China preps for a list of its products that will fall under increased U.S. duties on June 15.
"During trade negotiations with the US, China may need to show that it is not afraid of the US.," argues ING's Iris Pang "A threat to weaken the yuan would likely be effective, given that the US wants to export more goods to China. Though this would not be constructive in negotiations, it is an important signal that China is not afraid of the tariff threat."