At G7 ministerial, US fails to reassure EU, Japan over ‘Trumponomics’

German Finance Minister Wolfgang Schauble (L) and Secretary US Treasury Steven Mnuchin (R), pose during a group photo at the G7 Ministerial Meeting of Finance in Bari, Italy, 13 May 2017. [Ciro Fusco/EPA]

The United States said on 13 May the world’s other rich economies were getting used to the policy plans of President Donald Trump, but Europe and Japan showed they remained worried about Washington’s shift.

Officials from the Group of Seven nations met in southern Italy hoping to hear more about Trump’s plans, which they fear will revive protectionism and set back the global approach to issues such as banking reform and climate change.

G7 finance ministers in Italy try to gauge Trump's policy plans

Finance chiefs from the G7 begin a two-day meeting in Italy today (12 May), with Europe, Japan and Canada hoping to come away with a clearer picture of US President Donald Trump’s direction on important policies that he has yet to spell out.

US Treasury Secretary Steven Mnuchin said the United States reserved the right to be protectionist if it thought trade was not free or fair.

“We do not want to be protectionist but we reserve our right to be protectionist to the extent that we believe trade is not free and fair… Our approach is for more balanced trade, and people have heard that,” Mnuchin told reporters at the end of the two-day meeting.

“And as I say, people are more comfortable today, now that they’ve had the opportunity to spend time with me and listen to the president and hear our economic message.”

Other ministers from the G7 countries made it clear they did not share his view.

“All the six others … said explicitly, and sometimes very directly, to the representatives of the US administration that it is absolutely necessary to continue with the same spirit of international cooperation,” French Finance Minister Michel Sapin told reporters.

Bank of France Governor François Villeroy de Galhau said there was a “light breeze” of optimism within the G7 about the recovering global economy after years of sluggish growth following the financial crisis that began nearly a decade ago.

But he said the continued uncertainty about the direction of US policy represented a risk, echoing comments made on Friday by Japanese Finance Minister Taro Aso.

“We must not backpedal on free trade as it has contributed to economic prosperity,” Aso said.

European G7 officials complain that no-one knows what the United States understands by “fair trade” and that the only way to establish fairness was by sticking to the rules of the World Trade Organisation – a multilateral framework.

They also say the US demand to balance trade bilaterally was not economically sound, because trade deficits and surpluses could only be analysed in a global context.

A senior Japanese finance ministry official said on Saturday uncertainties remained over how quickly the US Federal Reserve would raise interest rates, but the biggest question mark was over possible US tax cuts that could fire up an already recovering US economy.

Trump has proposed slashing the US corporate income tax rate and offer multinational businesses a steep tax break on overseas profits brought back home.

He dropped, however, a controversial proposal of a “border-adjustment” tax on imports as a way to offset revenue losses resulting from tax cuts.

The tax reform plans were also questioned by some European officials. “I am not so sure that with an economy already at full employment and working at full speed a fiscal stimulus would add a lot,” European Commissioner for Economic and Financial Affairs Pierre Moscovici told reporters.

“(But) we avoided some discussions which would have been more damaging, like the border adjustment tax, which is no longer on the table at this moment,” he said.

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