G-7 finance ministers aim to avoid public spats with US despite trade turmoil

Finance ministers who’ve gathered in Canada for a Group of Seven meeting this week face a difficult task — trying to find common ground on trade issues while avoiding public conflict with US Treasury Secretary Scott Bessent.

The White House has targeted G-7 allies as part of its expansive agenda, hitting steel, aluminium, automobiles and other goods with new import taxes and threatening even more in the biggest revamp of American trade policy of the postwar era. Tariffs, and the worsening global economic outlook, will hang over everything as finance chiefs and central bankers meet in the mountains of western Alberta.

“I think this is a very consequential moment for the G-7 in the world,” Canadian Finance Minister Francois-Philippe Champagne told reporters Tuesday. “Our role is to restore stability and growth. I would say those are two main objectives.”

But he carefully dodged questions about the very real fractures between the US and the other members of the exclusive club — Italy, France, Germany, Japan, the UK and Canada.

Ahead of the beginning of the summit, intensive work was underway to find common language that all G-7 members can agree to on trade and Ukraine, the two key sticking points. Bessent — who has emerged as one of President Donald Trump’s chief trade negotiators — is expected to hold bilateral meetings with each of his counterparts.

One topic where the group is likely to find at least some consensus is China. The Canadian hosts have made sure to put Chinese trade practices on the agenda — though some are wary of doing too much China-bashing. Bessent will advance the US position that Chinese overcapacity is doing great harm to manufacturing and output in other nations.

Countries have stepped up their trade actions against Asia’s largest economy to align themselves more with the US.

Canada broadly matched US tariffs on Chinese electric vehicles, steel and aluminum last year. France is pushing to add fees to small packages from discount retailers such as China’s Temu and Shein, while the UK is weighing a similar move — akin to the US step of removing the de minimis exemption. Champagne said that will be a topic of discussion at the meeting.

“There’s a lot that we are looking to coordinate our actions and really tackle some of the big issues around overcapacity, non-market practices, financial crime,” he said. “So the spirit around the table is constructive.”

But the group’s ability to unite against China has been fractured somewhat by Trump’s trade moves and his aggressive rhetoric against traditional allies. One person involved in the preparations described this week’s meeting as a family needing to get together and sort out its own internal issues before being able to talk about a showdown with an outsider.

UK Chancellor of the Exchequer Rachel Reeves hopes to stress the importance of open and free trade to boost growth after her country recently signed agreements with the US, India and the European Union. She’ll try to present herself as leading the push on trade, said a person familiar with her thinking, though her conversation with Bessent may also need to address some of the unanswered questions left in the UK-US agreement.

Bessent is in charge of negotiations with Japan and is expected to have substantial discussions with Finance Minister Katsunobu Kato, including on currency issues. Kato said Tuesday that they agree exchange rates should be set by markets but that excessive volatility has adverse economic impacts, echoing the G-7’s traditional stance.

Strategists at Citigroup Inc. told clients in a report this week that while Bessent is unlikely to “aggressively pursue” a weaker dollar, there is “headline risk” for the greenback as high tariffs and inflation are reversed in trade negotiations. The US has said that currency pledges won’t feature in its trade deals.

Eric Lombard, France’s minister of economy and finance, is also prepared for a discussion on financial stability, including the volatility after April’s tariff announcements and the commitment of G-7 members in regulatory frameworks such as Basel III.

Stagflation risk 

For the G-7 central bankers, the elephant in the room is possible stagflation should the trade war intensify. The combination of slower growth and higher inflation is a troubling mix for policymakers, and may restrain interest-rate relief that would help offset the hit their countries will take because of reduced access to the US market.

The limits of monetary policy are likely to be a focus for finance ministers too, who will need to carefully tailor a fiscal response that supports businesses and citizens without reigniting inflationary pressures.

With bond yields still elevated, there are likely to be questions about how much more debt advanced countries can pile on without investors demanding even higher term premia. The yield on benchmark 30-year Treasuries has shot up more than 50 basis points since April 4, when global markets were still absorbing the shock of Trump’s “Liberation Day” tariff announcement. Most of that move happened even before the US was stripped of its Aaa credit rating by Moody’s on Friday.

The question of trade with China looms large for inflation too, given its status as a provider of low-cost goods. The rise of protectionism and the reversal of freer global trade now points to higher-for-longer price pressures in G-7 economies.

Central bank independence is also likely to be a subject of discussion. Trump has repeatedly harangued Federal Reserve Chair Jerome Powell on social media, calling him a “major loser” and a “fool” who has been too slow to cut rates. Some, including Bank of Canada Governor Tiff Macklem, have publicly touted the importance of monetary policy remaining free from political interference.

Ukrainian Finance Minister Serhiy Marchenko is also at the summit; his presence is likely to help members as they try to convince Bessent that clear support for Ukraine must be included in any final communique.

Under Trump, G-7 meetings have tended to be more fraught. The last time Canada was the year’s host, in 2018, Germany’s Angela Merkel was captured in what became a famous photograph, surrounded by others and leaning over a cross-armed Trump.

The image was seen as a public display of world leaders pushing back against a disruptive president. US allies broadly agree that they don’t want to recreate that moment for the cameras this year. The G-7 leaders will meet in Kananaskis, Alberta, in the middle of June.

© 2025 Bloomberg

Follow Moneyweb’s in-depth finance and business news on WhatsApp here.