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by Mish

Italy will host the next G7 meeting, and Italy’s Prime Minister calls for G7 to Challenge Donald Trump.

Italy has called on G7 countries to reject protectionism at their summit in Sicily in May, setting up a clash with Donald Trump just days after his administration’s trade stance caused conflict at a G20 meeting in Germany.
The US forced a watering down of the language on trade after the G20 finance ministers’ meeting in Baden-Baden, changing its traditional call to “resist all forms of protectionism” to the need to “strengthen the contribution of trade to our economies”.
But on Tuesday night, Paolo Gentiloni, Italian prime minister, said the G7 group of leading economies should be steadfast and unambiguous in its support for an open global economy, making it a priority for the summit.
Mr. Gentiloni’s comments amount to a challenge to Washington, which has performed a sharp U-turn on trade policy since Mr. Trump took office as president.
Aside from last week’s tussle in Germany, the US has over the past two months pulled out of the Trans-Pacific Partnership, questioned the World Trade Organisation’s dispute settlement mechanism and vowed to change the North American Free Trade Agreement with Canada and Mexico.
As host of the G7 summit, Mr. Gentiloni is in a position to craft the agenda but other G7 leaders — who have been troubled by the US’s new stance on trade — appeared to agree that it was worth trying to force the issue when they meet Mr. Trump in Sicily.

G7 Statements are Irrelevant

Japan’s prime minister Shinzo Abe made this statement in Rome: “In a context in which protectionist and isolationist tendencies are growing, the G7’s role is more important than ever.

What a hoot. G7 statements are meaningless.

For decades the G7, G20, GWhatevers, have all agreed to do something about agricultural tariffs. At the end of every summit, the results have been the same, zero progress.

Obama’s Trans-Pacific Partnership (TPP) agreement was seven years in the making but Hillary, Trump, and Bernie Sanders were all against it. TPP is officially dead.

It Only Takes One

It only takes one nation to kill an agreement. In the case of G7, we are not even talking about agreements, but on agreements to agree later.

Italy claims to want free trade. OK, how about starting with free trade in the EU? How about killing French agricultural tariffs? How about not punishing the UK over Brexit?

Curiously, Gentiloni is on the right side of that argument, at least more than the rest of the EU. Paolo Gentiloni told Theresa May his country’s Brexit Approach will be ‘Friendly and Constructive.’

Unfortunately, all 27 nations have to agree. Moreover, there is a difference between friendly and genuine free trade.

Agreements to Agree

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In the G7, year in and year out, there is always one country that objects to something. Historically, China dissented over steel and currency manipulation, the EU over agriculture, and Japan over interest rates (until the whole world followed with ZIRP).

The G7 nations spend an amazing amount of time trying to reach agreement on a three paragraph communiqué at the end of each summit. Then a year goes by and nothing ever happens.

Agreements to agree are very difficult. Actual G7 agreements in the form of commitments are next to impossible.

Free Trade is Easy

Free trade is easy in theory. Just do it.

A simple one sentence document is all it takes: “Effective today, all tariffs and all subsidies are abolished.

Oops, Italy can’t do that. Italy is precluded from free trade because it is bound to the un-free trade policies of the EU.

Moreover, I am certain Italy would not have such a policy even if it could. Many countries are in favor of free trade until the time comes to actually do it.

Me First

Free trade has become nothing more than a euphemism for wanting no export restrictions but massive import restrictions.

In his inaugural speech,  Trump said ‘Protection will lead to great prosperity and strength‘.

On March 19, I reported  “Me First” Philosophy: G20 Waters Down Free Trade Language.

Such “Me First” policies cannot mathematically work.

The more countries that try “Me First”, the bigger the global trade collapse will be, no matter what the next totally useless G7 communiqué states.

Mike “Mish” Shedlock