The G7 solves nothing

G7 Flags

The meeting of leaders over the weekend in Biarritz led to US President Donald Trump’s tweet suggesting there could be more trade talks with China after all. It was sufficient for a modest rally, after the tariff-induced sell off last week. The markets remain fixated by the twin stories of possible rate cuts to come, and the damage the trade wars might do if they escalate.

The G7 Communique tells us they have left the issue of how to tax multinationals more until next year, despite some countries itching to increase the tax paid by the large digital economy companies.

The summit conclusions indicated they want WTO reform to buttress intellectual property rights, speed the resolution of trade disputes and eliminate unfair practices, without giving us insight into how this might come to pass. It sounded like President Trump’s agenda grafted onto an international body and legal framework.  They called for a truce and peace conference in Libya, want violence ended in Hong Kong, and wish to stop Iran gaining nuclear weapons whilst fostering peace and stability in the region.

French pressure

French President Emmanuel Macron decided to take on Mr Trump over various issues. He wants the President to meet the Iranian President to try to broker a reduction in tensions. The US is the only country with a sufficient military presence close to Iran to be able to take her on militarily,  but it looks unlikely President Trump would want to do that anyway. He clashed with the US over global warming and the fires in Brazil. The other members of the G7 went along with the French idea of offering financial help to Brazil to put out the fires to stress the worry these fires are inducing. This went badly, with President Bolsonaro resenting the intervention, turning down the cash and accusing France of pursuing a colonial strategy towards his country.

The meeting confirmed that the US and its European allies are still in substantial disagreement about how the world of international diplomacy should work. The US would like Russia to be readmitted to this set of meetings, to be renamed the G8 again. The Europeans disagree. The Europeans think global warming is the biggest single challenge facing the world, whilst the US is sceptical of this. The US wishes to advance US trade interests to tackle its colossal trade deficit by doing a series of bilateral deals with trading partners. The Europeans are happy with the current structure of world trade agreements, favouring multinational treaties.

The markets will continue to be very affected by what the US does. President Trump is clearly entirely focussed on winning a second term and will judge things by the contribution they make to his agenda to bring that about. He wants more and better-paid US jobs, more exports, fewer imports, lower unemployment and fewer migrants coming across the Mexican border. He also wants to crack down on opioid abuse. He will be glad that the state of Oklahoma has just won a big case for damages against Johnson & Johnson. Government wants pharmaceutical companies selling these drugs in the US to be made to pay for the widespread abuse of these pills whether they were guilty or not of any wrongdoing themselves. It’s a further reminder that not all sectors and shares will fare well even against a background where growth is the policy priority.

 


The above article was previously published by Charles Stanley on 28th August 2019