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In this Feb. 13, 2017, file photo, President Donald Trump smiles during a news conference with Canadian Prime Minister Justin Trudeau in the East Room of the White House in Washington. (AP Photo/Andrew Harnik, File)

G7 summit begins Friday as Canada, EU and Japan unite against US tariffs

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WASHINGTON (Circa) — Tensions are running high ahead of the Group of Seven (G7) summit in Charlevoix, Quebec as the United States and its key allies announce billions of dollars in trade tariffs against one another sparking fears of a trade war and a fracturing of the multilateral alliance.

Only days before the June 9-10 summit, the G7 member states, Canada, France, Germany, Italy, Japan, the United Kingdom and E.U., announced retaliatory trade measures in response to U.S. tariffs on steel and aluminum imports.

The White House downplayed concerns about a trade war describing the tit-for-tat measures as "a family quarrel" and "trade disputes."

Chief of the White House Economic Council Larry Kudlow suggested many of the contentious trade issues will be worked out in bilateral meetings. President Donald Trump is planning to sit down with the leaders of Canada and France on the sidelines of the summit.

"I regard this as much like a family quarrel," Kudlow told reporters at the White House Wednesday. "We may have disagreements, we may have tactical disagreements, but he has always said — and I agree — tariffs are a tool in that effort. And people should recognize how serious he is in that respect."

International trade experts and former government officials are anticipating more than a family feud breaking out at the typically cordial meeting of historic allies.

TRADE CONFLICT CREATING A 'UNITED FRONT' AGAINST U.S.

So far, each country attending the summit has announced retaliatory measures against the Trump administration's 25 percent tariff on steel and 10 percent on aluminum imports.

Canada announced $12.8 billion in retaliatory tariffs against the United States that will affect everything from U.S. steel and aluminum, to maple syrup, mattresses and toilet paper.

Canadian Prime Minister Justin Trudeau sharply criticized the Trump administration's trade actions that added insult to injury by labeling Canada as a national security threat. Trudeau told NBC News he considered the act "insulting and unacceptable."

On Wednesday, European Union officials announced the bloc would impose $3.3 billion worth of retaliatory tariffs on U.S. goods. The duties are scheduled to go into effect in July.

Japan, which has been negotiating for a permanent exemption from the U.S. steel tariffs, said this week they would "team up" with Europe in opposing the trade penalties and call on other countries for cooperation.

The level of coordinated push-back against Trump's policies is extraordinary for this multilateral format, said John Higginbotham, a senior fellow at Carleton University and the Centre for International Governance Innovation. Higginbothom formerly served as a Canadian diplomat and led the division that helped run G7 summits.

"Normally these summits heal wounds in the international system," he said. "These things usually build up trust among leaders ... but I don't think that dynamic is going to work for this particular summit."

He noted that the U.S. president's actions have "completely undermined" the normal course of handling trade disputes while increasing animosity among the G7 partners. "I don't know quite what a trade war is," he said. "This certainly the first volley in such a war."

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This looming conflict has created a very different context for this year's summit, which could be the most contentious since Russia was kicked out of the group in 2014.

"In previous years, they looked to tackle a common challenge together" said Marie Kasperek, the associate director of the Atlantic Council's global business and economic program. "They're usually a united front against a common threat. Now, there are split opinions and maybe even a united front against the United States on the trade issues."

More fundamentally, the organization is now focused on what she called "an existential threat to the international order."

Established in 1975 at the initiative of France, the G7 is among the handful of U.S.-dominated post-World War II multilateral institutions. According to the White House, that framework is "broken."

On Wednesday, Kudlow argued the system "worked beautifully" in the past, "but it is broken and President Trump is trying to fix it" through his unconventional approach to world trade.

U.S. allies vented their frustration with the U.S. approach to the multilateral institution, with some expressing shock at the degree to which the Trump administrations trade actions created a united front of opposition.

Taro Aso, the Japanese Finance Minister recently admitted, "I’ve been to these meetings for a long time. But this is a very rare case where opposition against the United States was unanimous."

The EU Economics Commissioner tamped down on expectations. In a recent interview with a French news outlet, Pierre Moscovici stated, "I don't have any reason at this stage to be optimistic."

While it is still possible the countries could reach an agreement during the two-day meeting, it is not likely, said Andreas Kyriakos, a researcher with the University of Toronto's G7 Research Centre.

"Given the weight of countries allying themselves against the United States, I don't really see a basis for compromise that could end this looming conflict," he said.

WHAT TO EXPECT

In the months leading into the summit, lower level officials typically meet to hammer out the details of a joint communique outlining common objectives in trade, global economics, the environment and security. By the time the heads of state arrive for the summit, the communique is essentially complete and awaiting signatures and photo ops.

As of Thursday afternoon, there was no draft communique.

"Usually by now the sherpas of the top diplomats for each country are crossing the t's and dotting the i's of the communique but given the lack of consensus we don't even know if there will be a communique," said Kyriakos.

Asked what will unfold in the coming days, he said, "Expect the unexpected."

French President Emannuel Macron added to the uncertainty with a series of tweets Thursday suggesting a "6+1" agreement without the United States.

"The will to have a text signed by 7 countries must not be stronger than the content of that text," Macron wrote. "On principle, we must not rule out a 6+1 agreement."

In an earlier tweet, Macron issued a poignant reminder to Canada, Japan and the other E.U. countries, writing, "The six other G7 countries combined form a larger market than the American market. This must not be forgotten."

It would not be unprecedented for the G7 to conclude a summit without all parties agreeing on a communique. Having a "6+1" communique would "not be as powerful," Kasperek said, but it may make sense under the circumstances. "Maybe this is the only way we can go forward in a meaningful way."

Though the issue of bilateral and multilateral trade is expected to dominate the meeting, Canada's original objectives for the summit, outside of the trade issues, include climate change, gender equality, economic and job growth and security. The United States, which backed out of the Paris climate agreement in 2017 may find it difficult to sign onto the broader agenda.

The risk of a division among the G7 countries is not simply a matter of producing a consensus document. Today its members, U.S. Canada, France, Germany, Italy, Japan, the United Kingdom and E.U., together account for approximately half of global GDP.

According to a new report by the Organization for Economic Cooperation and Development, the U.S. trade policies could jeopardize the projected gains in the U.S. and global economies.

In a Wednesday speech at the National Press Club, OECD Secretary-General Angel Gurría warned, "If wide-ranging new restrictions and retaliatory measures are deployed, there will be a major adverse impact on trade. Time and time again, our work has shown that countries imposing barriers are the most severely affected."

Beyond their broad economic impact on families and businesses, the tariffs were also crafted to impact U.S. domestic politics as well, Kyriakos explained.

The Canadian countermeasures, he explained, "are obviously closely calculated to hit in specific congressional districts as we look into the American midterm elections."

For example, Canada and the European Union targeted the House and Senate Republican leaders with duties on Kentucky bourbon, and Harley Davidson motorcycles manufactured in Wisconsin. A number of big agriculture states that voted overwhelmingly for Trump will also face new trade barriers when the retaliatory tariffs go into effect.

So far, the tariffs have created some temporary jitters in financial markets but have not yet translated into higher prices on consumer goods.

Symbolically, the stakes are higher. "When leaders are not aligned, that cascades down," Kyriakos said. "It does not bode well for international security."

The White House has argued that the impact of its policies on longstanding alliances will be minimal and will result in more reciprocal trade relationships.

Kasperek said the rift between the G7 is much more significant than what has been suggested by the White House.

"The United States needs to understand they just declared their closest, traditional partners in security and economic matters a security threat," she said. "And those partners will not be able to accept that."

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