Fires ravaging the Amazon rainforest were discussed at the Group of Seven summit in France on Monday. But the metaphorical blaze threatening to meltdown the global economy left G7 world leaders in a hot spot.
During the talkfest in swish Biarritz, the polluted pall of the year-long trade war between China and the United States hung over the French resort.
“We do not have free trade with them [China],” US Treasury Secretary Steven Mnuchin said on the sidelines at the weekend.
“It’s a one-way street … They have free entrance into our markets, our investments, our companies and we do not have the same thing there. That’s the only reason why we are in this situation with China. If China would agree to a fair and balanced relationship, we would sign that deal in a second,” he added.
To complicate an already Byzantine issue, his boss, US President Donald Trump, appeared to contradict himself at a media briefing.
When asked if he regretted his decision on Friday to ratchet up tariffs in October on Chinese imports worth more than US$500 billion, he responded: “I have second thoughts about everything.”
Hours later, White House spokeswoman Stephanie Grisham moved quickly to “clarify” the statement.
“The president was asked if he had ‘any second thought on escalating the trade war with China’. His answer has been greatly misinterpreted,” she said, adding that his real regret was not to have raised tariffs even more.
In the end, it descended into a farce following Friday’s escalation by Beijing.
As soon as President Xi Jinping’s administration raised duties on US imports worth $75 billion, the White House hit back with an array of increased tariffs.
A day later, G7 host and French President Emmanuel Macron voiced his concerns about what is developing into a new economic Cold War.
“We have to achieve some form of de-escalation, stabilize things, and avoid this trade war that is taking place all over,” he said.
His remarks were echoed by new British Prime Minister Boris Johnson after discussions with Trump.
“Just to register a faint, sheep-like note of our view on the trade war – we are in favor of trade peace on the whole,” he told the US president.
By then, the damage had been done. Friday’s fallout sent Wall Street into a tailspin and morphed into Monday madness as Asian markets became a sea of red.
Japan’s Nikkei 225 dropped by 2.17% to close at 20,261.04 points, while South Korea’s Kospi fell 1.64% and Australia’s S&P/ASX 200 closed down 1.27%.
In Hong Kong, the Hang Seng Index plunged nearly 2% after another weekend of violent protests in the city. Mainland stocks also suffered, with the Shanghai Composite dipping 1.17% and the Shenzhen Component edging lower at 0.98%.
“This tit-for-tat escalation shows how unlikely a trade deal and de-escalation have become,” Louis Kuijs, the head of Asia at Oxford Economics, wrote in a note.
“It is now unlikely that the existing and planned trade restrictions will be removed any time soon, while other kinds of restrictions may also be introduced.”
The only glimmer of hope came from China’s Vice-Premier Liu Hu, who is also Xi’s point man in the dispute with Washington.
He tried to ease tensions during the opening ceremony of the 2019 Smart China Expo in Chongqing on Monday.
“We are willing to solve the problem through consultation and cooperation with a calm attitude,” he said, according to the Caixin media group.
“We firmly oppose the escalation of the trade war … [it] is not conducive to China, the US and the interests of people all over the world,” Liu added as the world’s second-largest economy shows signs of stress.
In response, Trump pointed out that Beijing had asked to re-start talks, hours after Liu’s comments. But Xi’s government has so far refused to confirm that.
“China called last night our trade people and said let’s get back to the table,” he told the press on the sidelines of the G7. “They understand how life works.
“They want to make a deal,” he added. “We’re going to start very shortly and negotiate and see what happens but I think we’re going to make a deal.”
Discussions were already penciled in for next month while Trump’s upbeat assessment is nothing new. In the meantime, the flames from the trade conflict continue to spread.