Home Money The US and Europe are at odds and the threat of a disastrous end to the free trade era is very real, says ALEX BRUMMER

The US and Europe are at odds and the threat of a disastrous end to the free trade era is very real, says ALEX BRUMMER

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Collision course: the United States and Europe are at odds on trade matters

Israel’s retaliatory attack on Iran provides a sharp reminder of how geopolitics is distorting global economic relations.

The immediate reaction to events in the Middle East is seen in financial markets, where stocks have retreated from their highs, the dollar has strengthened and gold has reaffirmed itself as a safe haven.

Behind the market headlines, Russia’s war against Ukraine and Israel’s defense against Iranian aggression, in Gaza through Hamas and directly with drone and missile attacks, are in danger of destroying globalization.

The peak of global cooperation was reached after the great financial crisis, when then-Prime Minister Gordon Brown created the G20 in the midst of an economic catastrophe.

The G7’s exclusive club of rich nations expanded to include new economic powers, including India, China, Brazil, Russia and Saudi Arabia.

Collision course: the United States and Europe are at odds on trade matters

The era of Western domination of economic and strategic decision-making was being displaced by a new global leadership group that empowered rising nations.

The Group of Seven (United States, Japan, Germany, United Kingdom, France, Italy and Canada) was reduced to a secondary role. How quickly all that has changed. At this week’s IMF and World Bank sessions in Washington, the key word has been “fragmentation.”

The most obvious signs of this are the US reassertion of economic nationalism through the misnamed Inflation Reduction Act and Joe Biden’s Chip Act, which aim to build US resilience in the Climate change and semiconductor manufacturing.

The World Trade Organization is being devalued daily through unilateral measures, such as the tripling of US tariffs on steel and aluminum from China, and an endless stream of financial sanctions imposed on countries as geographically separated as Iran and Venezuela. The widespread assumption about fragmentation is that it is largely a battle of wills, as the United States – and to a lesser extent Britain – seek to become less dependent on Chinese goods.

Finance ministers and officials attending this week’s G20 argue that something much more sinister and difficult to fix is ​​afoot.

The speed and determination with which Western democracies have come to Ukraine’s rescue and steadfast support for Israel in its war in Gaza have created a bitter divide that goes far beyond previous tensions between North and South.

At the G20, the fissures were visible. Russia’s economic renaissance, despite Western sanctions, should come as no surprise

It is known that Vladimir Putin has the support of China and India to refine their oil. It was also evident that many of the largest emerging market nations are deeply resentful of the way the West acted so quickly to help Ukraine.

It is equally worrying that the same forces that have been driving pro-Palestinian marches in London and disrupting university campuses from Columbia in New York to Glasgow are infecting the global dialogue. There is deep resentment over the unreserved support of the United States and Britain for Israel, despite the atrocities of October 7. The magnitude of the support contrasts with the West’s lack of response to conflicts in Africa, such as that in Sudan.

Among the most agitated countries is South Africa, which led the effort to label Israel’s actions in Gaza as genocide.

What is worrying is that democracies like India and Brazil have aligned themselves with autocracies in Russia and China in geopolitical conflagrations.

One consequence of this has been to re-empower the G7, where critical decisions are being made about using frozen Russian assets to prosecute the war in Ukraine.

There is concern among Western democracies that the conflict in Ukraine, in the heart of Europe, could last longer than the First World War.

It is also true that the G7 is far from unified in its purpose.

Disruption on the Republican right means the United States cannot get its act together on military assistance to Ukraine. The United States and Europe are at odds on trade matters. President Biden is increasing support for climate investment and technology production as Europe looks to eliminate subsidies.

The threat of a disastrous end to the free trade era is very real.

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