Trump Doctrine Confounds G-7 as Ministers Kick Can to Sicily

(Bloomberg) -- Group-of-Seven ministers slowly coming to terms with the reality of Donald Trump’s administration are about to leave the heavy lifting to their bosses.

Finance chiefs in Italy at the weekend spoke of an improving relationship with their U.S. counterpart Steven Mnuchin, in a contrast to previous encounters. But with their gathering in Bari cementing rather than mending disagreements on free trade, the risk is that the diplomatic truce they achieved unwinds when Trump himself meets with G-7 leaders on the island of Sicily later this month.

“They couldn’t do more for now,” said Simone Romano, a research fellow in economics at Rome Institute for International Affairs. “At the upcoming G-7 leaders, Trump is a bit of unknown quantity -- it can go well or badly, he can decide something suits him and things can advance rapidly, or not. So, the ministers did O.K. under the circumstances.”

For all the talk of warmer relations after the event, the rest of the G-7 remains fundamentally divided from the U.S. on the legitimacy of free-flowing global commerce -- a concept against which Trump was outspoken during his election campaign. The Bari meeting of finance ministers resulted in a communique that maintained only diluted language on trade, while noting collaboration on a host of issues from tackling cybercrime and inequality to addressing currency manipulation.

“I took this weekend’s news as being a reiteration of the March statement,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp in London. “I continue to see this as an indication that the U.S. administration is determined to tackle what it sees as unfair trade policies.”

Compromise Wording

Mnuchin say more about trade policy when he gives his first testimony to Congress in Washington on Thursday. The Senate Banking Committee could ask him about anything from banking regulation to the decision not to name China a currency manipulator.

The Bari meeting included a reference to “working to strengthen the contribution of trade to our economies,” reproducing the wording from the G-20 in March at Baden-Baden, Germany. That was a hard-fought compromise after the U.S. refused to sign up to a long-standing commitment against protectionism.

“These communiques have become virtually irrelevant in terms of statements of actual policy intent released to the public,” said Erik Nielsen, global chief economist at UniCredit. “Rather they seem an exercise in crafting language with the lowest common denominator.”

The actual production of a communique by the G-7 was a departure from recent finance chief meetings –- potentially taking the pressure off the nations’ leaders at the summit on May 26-27.

Aside from the challenges of engaging the U.S. president for the first time in a multilateral environment -- in the shadow of one of the world’s largest volcanoes -- there is also the chance that domestic matters could loom over that event. Trump is dealing with the fallout of his firing of FBI Director James Comey, while the European premiers present at the summit will also have the potential distraction of elections on their minds.

At the Bari meeting, Mnuchin, the Treasury secretary, said that the U.S. doesn’t want to be protectionist “but we reserve our right to be protectionist, to the extent that we believe trade is not free and fair.” That epitomizes an economic doctrine whose implications for investors and world governments remains, for some officials, not fully articulated.

Awaiting Details

There are “some points on which the American administration doesn’t, at this point in time, feel comfortable expressing a sufficiently well thought-out opinion,’’ French Finance Minister Michel Sapin said in a Bloomberg TV interview. “On all this, the position of the U.S. administration – or rather of President Trump -- hasn’t been codified yet.’’

Sapin’s comments were a rare signal of disquiet in press conferences after the meeting. Italy’s Pier Carlo Padoan told reporters that “the relationship with Mnuchin improves every time we see each other,’’ while his Japanese counterpart Taro Aso noted a contrast with the G-20 in Germany, where the secretary’s argument that trade should be “fair’’ rather than “free’’ almost thwarted any mention of it in the communique.

Mnuchin himself, buoyed by a recent U.S. deal with China, hailed the Bari talks as productive, adding that he felt the other G-7 nations now had a better understanding of the position of the Trump administration.

“People are much more comfortable today now that they’ve had the opportunity to spend time with me and listen to the president and listen to the economic message,’’ he said

Whether that comfort continues in Sicily is a matter for the G-7 leaders in two weeks’ time.

--With assistance from Alessandro Speciale Lorenzo Totaro Saleha Mohsin Matthew Miller Flavia Rotondi Toru Fujioka Birgit Jennen and Elena Gergen-Constantine

To contact the reporters on this story: David Goodman in Bari, Italy at dgoodman28@bloomberg.net, Alessandra Migliaccio in Rome, Italy at amigliaccio@bloomberg.net.

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Zoe Schneeweiss, Brian Swint