The Global Throw-Down. Let the Trade War Begin!

By John Rothans, Chief Numismatist @ U.S. Money Reserve

On the heels of the G-7 dustup in Charlevoix, the U.S. and some of its major allies are a little less united and a lot more uneasy about doing business together. So what exactly happened in Quebec?

The G-7 (Group of Seven) is a select bloc of nations that meets annually to discuss global governance. The bloc currently includes Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. These countries are considered among the seven largest advanced economies in the world. All but the U.S., however, have been eclipsed by China in terms of economic size and power, and based on data from the International Monetary Fund, India is now number seven, while Italy and Canada sit at numbers eight and ten respectively.

According to the Council on Foreign Relations, the G-7’s objective is to serve “as a forum for highly industrialized democracies to coordinate economic, security, and energy policy.” And while six of the nations endorsed a joint communique that covered everything from clean air and gender equality to international property protections and global security — President Trump disavowed the proclamation after taking offense to the Canadian Prime Minister’s pledge to retaliate against U.S. tariffs.

Before leaving the summit early, President Trump doubled down on mounting trade issues and said that chronic trade deficits have hurt U.S. workers. “We’re like the piggy bank that everyone is robbing,” he maintained. “The gig is up,” he warned and vowed that it will not go on. The President even floated the idea of a utopic trade-free zone with “no tariffs” and “no barriers.”

And yet, despite policy disagreements, the President suggested that the summit was not contentious and actually spoke in glowing terms about his one-on-one relationships with G-7 leaders before departing for Singapore.

But with Trump gone, Prime Minister Trudeau called American tariffs on aluminum and steel imports “insulting” and said Canada would not be “pushed around.” Aboard Air Force One and en route to his historic meeting with North Korean dictator Kim Jong Un, Trump took offense and called Trudeau “dishonest” and “weak.” His trade advisor went so far as to call the comments “back-stabbing.”

Needless to say, the G-7 summit ended with a bang.

So what does America’s trade imbalance actually look like? It is, in fact, the largest in the world, and it has been that way for over 40 years. Last year, U.S. imports were $2.895 trillion while exports were just $2.329 trillion, a shortfall of about $566 billion. The numbers for goods without services are far worse. Our deficit on goods alone increased 7.6% last year, widening to $810 billion.

Ironically, the EU, China, and Japan have complained about U.S. protectionist policies while steadily accumulating large surpluses and trade advantages.

America’s largest deficit is with China, but the other culprits include — you guessed it — Japan, the EU, and NAFTA partners Canada and Mexico.

In response to Trump’s steep tariffs on steel and aluminum, which went into effect on June 1, Europe, Mexico, and Canada have all filed complaints with the World Trade Organization (WTO) and vowed retaliation.

Last week, Mexico lodged new tariffs against U.S. pork, potatoes, and bourbon. The EU and Canada are expected to target similar goods next month. It’s a curious move since the WTO is expressly designed to help resolve trade disputes, and yet these nations are moving forward with retaliatory measures ahead of the WTO ruling.

Trump maintains that “fair trade” that’s not reciprocal is “fool trade” and justifies the aluminum and steel tariffs as an effort to protect American workers. The U.S. claims that retaliatory measures would only add to an already uneven playing field. And in response to reciprocal actions, the President could up the ante and lodge steep levies on the imports of cars and car parts, which would ravage the Canadian, Japanese, and German auto industries.

Clearly, tit-for-tat danger abounds. The gauntlet has been thrown down on all sides, and regardless of who’s right or wrong, a worsening trade war could undermine global growth and bring down world markets. As the Group of Seven plays the short game and China plays the long game, consumers on both sides will ultimately pay the price.

It may be time for a contingency plan. There may be only one asset that thrives on global uncertainty and international calamity — physical gold. It may be the closest the world can get to “trade war protection.”



America’s Gold Authority

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