Opinion, Berkeley Blogs

The slow rise, sudden fall of the G-7

By Daniel Sargent

A handout photograph from theLeaders at the G7 summit, including German Chancellor Angela Merkel and President Trump, in Canada on June 9, 2018. German Chancellor Angela Merkel and other leaders at the G-7 summit, including President Trump, in Canada on June 9, 2018.

The end times have come and gone for the West over 70-odd years, but it is difficult these days, to escape the sensation that the dusk really is falling. A changing light casts long shadows — and generates harsh contrasts.

Seldom have the West’s defenders marshaled the solemn dignity that U.S. Sen. John McCain personifies in this last phase of his public life, as he speaks in eloquent defense of commitments that have animated U.S. foreign policy during his lifetime.

Dignity, meanwhile, may be the quality that the U.S. president’s diplomacy most lacks, with the G-7 summit of industrial democracies this weekend serving as the clearest example yet. After showing up late and interrupting a forum on gender equality, President Donald Trump scowled his way through sessions before departing early for Singapore. And as he headed out, Trump insulted his host and neighbor, Prime Minister Justin Trudeau of Canada, and retracted his signature from the G-7’s communique, ending a 42-year run of choreographed collegiality. Then, over the past 24 hours, Trump has showcased his preference for the company of a callow despot, North Korea’s Kim Jong Un, over engagement with what used to be considered America’s closest allies and peers.

What now for the G-7? History offers no clues to the future, for the strange developments of the present mostly defy analogies and comparisons. Yet reflecting on the G-7’s origins and early development may help explain both how we got where we are and the real stakes of Trump’s irascibility.

The story begins in the rubble of World War II, with American elites uncertain as to what responsibilities, if any, the United States should assume for war-torn foreign societies. The Cold War’s escalation soon prompted the acceptance of novel burdens. Marshall Plan aid opened the dollar spigots, and NATO enshrined security guarantees. By the early 1950s, Washington had built an international order centered upon the dissemination of U.S. economic resources, security guarantees, and public goods.

Formerly a cultural category, the West became a geopolitical group: a league of nation-states beholden to common institutions, bound to U.S. leadership, and counterposed to the East. Serious dilemmas vexed the West in the 1950s, especially the question of whether Europeans could trust the United States to use nuclear weapons to defend Western Europe when the actual use of nuclear weapons would invite a response in kind, putting U.S. lives at risk.

Still, the West’s first existential crisis did not arrive until the late 1960s, when three factors combined to deluge the postwar international order in uncertainty. First, Europe’s postwar economic recovery prompted Americans to ask whether they should continue to exercise singular responsibilities for the wellbeing of their allies. Second, the descent into Vietnam prompted Europeans to question whether American good judgment could really be trusted. Third, the gradual relaxation of Cold War rivalries after the 1962 missile crisis loosened the inter-bloc hostilities that had bound the West (and East) together.

Nixon's fixation: unfair trade

Amid adverse structural trends, a shift toward unilateralism and nationalist bravado in U.S. foreign policy pushed the West into its severest crisis (so far) of the postwar era. Unfair trade was a fixation for President Richard Nixon, who entered the White House in 1969 convinced that his country was bearing an unreasonable share of the West’s common burdens. “We have done everything for them and they have done nothing for us,” Nixon complained.

Nixon’s grievances focused not on tariffs so much as the Bretton Woods international monetary arrangements established in the last years of the Second World War. A quarter century of fixed exchange rates had locked in an overvalued U.S. dollar, Nixon believed, with consequences that disadvantaged U.S. manufacturers, favored foreign imports, and left the United States exposed to severe balance of payments crises. The concerns were valid, but Nixon’s solution was brutal.

On Aug. 15, 1971, Nixon announced without forewarning that the United States would abandon the gold-dollar exchange standard. Nixon also imposed a 10 percent surcharge on imports to the United States, invoking the Trading with the Enemy Act of 1917 as a source of presidential authority.

Nixon’s move plunged the West into a prolonged crisis that the quality of his personal relationships only exacerbated. Aloof, dour, and hubristic, Nixon had mostly difficult relations with foreign peers. The rare exceptions were those occasions when a foreign lickspittle presented himself with sufficient deference, much as Nixon himself accomplished when he visited the court of Mao Zedong.

Western alliance: 'Jackals' and a 'cancer'

While Nixon shocked, it fell to National Security Advisor Henry Kissinger — still an arriviste in high-level diplomacy — to hammer out the basis for a solution. In a plan that Nixon ratified with French President Georges Pompidou in late 1971, the dollar was devalued and fixed exchange rates were restored. When that compromise faltered, the Europeans and the Americans conceded in early 1973 to let foreign exchange markets set the values of their currencies — a solution that endures to the present.

Kissinger radiated the charm Nixon lacked, but even he could not resolve the forces pulling at the West’s seams. After the monetary turmoil of 1971 to 1973, the aftershocks of the Arab-Israeli War of 1973 were even worse. European and Japanese diplomats lamented that Washington’s pro-Israel bias had invited an Arab oil embargo, risking the West’s energy security. Kissinger, who commanded U.S. foreign policy as Nixon drenched his sorrows in booze, was no less aggrieved. The failure of the Europeans to stand by the United States during the ensuing oil crisis was treacherous, Kissinger exclaimed: the Europeans were “jackals” and the Western alliance had turned into a “cancer.”

From this nadir, leaders sought renewal. Consultations among the British, French, German, and U.S. finance ministers began in March 1973 at the behest of U.S. Treasury Secretary George Shultz. In 1974, U.S. diplomats worked, on a parallel track, to build a Western front on energy. The campaign led to the creation of the International Energy Agency in late 1974.

A series of leadership changes was also crucial. Over the course of 1974, Helmut Schmidt replaced Willy Brandt as chancellor of Germany, Valéry Giscard d’Estaing succeeded Georges Pompidou as president of France, and Harold Wilson dispatched Edward Heath to become prime minister of the United Kingdom. Most important, the gregarious and collaborative Gerald Ford replaced the imperious Nixon. The pieces were in place for a revival of a Western dialogue, even of a common purpose.

Early proposals for a heads-of-state-and-government conference to explore common economic dilemmas originated with Giscard d’Estaing and Schmidt. Ford and Wilson endorsed the proposal in a Western meeting that occurred on the sidelines of the Helsinki summit of 1975, a grand East-West conference. Giscard offered to host an economic conclave at Rambouillet Castle, a damp and drafty venue just outside of Paris. The addition of Japan and Italy made the G-6, which convened from November 15 to 17, 1975.

The cramped confines at Rambouillet suggested Giscard’s preference for an intimate gathering of apex leaders, an “intensive seminar,” as diplomats described it. Over three sessions, the assembled leaders traversed diverse topics, including monetary relations, energy, and development. The imperative of international cooperation amid conditions of accelerating interdependence, or globalization, was a pervasive theme. No major decision-making occurred, although an offstage meeting among mid-ranking U.S. and French officials did establish a basis for amending the International Monetary Fund Articles of Agreement in early 1976.

Giscard had intended a one-off event, but the group reconvened seven months later in Puerto Rico. The addition of Canada transformed the G-6 into the G-7, but the agenda remained unchanged. The economic summit sought dialogue on common problems, not collective decision-making. Indeed, the Puerto Rico meeting showcased sharp policy divergences: Schmidt and Ford favored disciplinary solutions to counter inflation, while Wilson favored Keynesian reflation to ease a persistent recession. But the debate nonetheless showcased the unity of the West’s leading countries. The affirmation of common purpose, not the formulation of policy, Kissinger argued, was the “moral foundation for these meetings.”

The heyday of summitry came under Ford’s successor. Impressed by his experience with the Trilateral Commission, Jimmy Carter hoped to turn the G-7 into a forum for collaborative governance. Carter achieved little at the 1977 London summit of the G-7, but he managed to strike a historic deal at the next summit. In Bonn, West Germany, Carter — who still favored Keynesian solutions — persuaded Germany and Japan to implement fiscal stimulus efforts in return for a pledge to decontrol domestic U.S. oil prices. Inconsequential in essence, the 1978 deal marked a striking bid to internationalize macroeconomic policy.

Carter, at this point, was ebullient about what summitry might accomplish. “We feel like members of a fraternity,” the president wrote in his diary. “We share problems and political analyses, try to understand different national perspectives, and cooperate.” Yet the results could underwhelm.

Carter’s Keynesian advisors hoped that a coordinated stimulus would cure the West’s persistent malaise. The effort failed, and U.S. policymakers soon made an abrupt U-turn. With the dollar beset by a new crisis in late 1978, Carter adopted an austerity policy. The U.S. Federal Reserve soon followed suit, opting under Chairman Paul Volcker’s new leadership to adopt a modified monetarist policy in September 1979. Adaptation to globalization was, in effect, supplanting Carter’s initial bid to manage globalization via annual economic summits.

The experiments of the Carter years put an end to the notion that the G-7 could function as a framework for governance. Instead, the 1970s diminished the West’s rules-based international economic order: There would be fewer rules and less order in a post-Bretton Woods era than had existed under the classic pre-1971 international monetary order. What emerged from the 1970s was a new configuration of (dis)order, in which markets set the terms, and governments acted mainly to manage intermittent crises.

The Plaza Accord of 1985, the U.S.-led bailout of Mexico during the peso crisis of 1994 to 1995, the IMF-led response to the Asian financial crisis of 1997 to 1998, and the coordination of stimulus initiatives within the G-20 in 2009 all showcased that crisis management, not collaborative governance, was the most that could be expected from sovereign nation-states acting in concert under conditions of advanced globalization.

On the most urgent dilemmas of our times — economic inequality, sustainable development, and the looming peril of ecological catastrophe — the G-7 has been irrelevant. The G-7 has not evolved into a directorate capable of offsetting a historic slippage in U.S. hegemonic capabilities, as political scientists like Robert Keohane once hoped it might. To call Donald Trump’s Canadian temper tantrum an assault on the West’s governing framework is to overstate, by a mile, the G-7’s institutional significance.

Trump’s assault is no death knell; as a project in global leadership, the G-7 was already dead. Its supersession by the G-20 during the global financial crisis confirmed its obsolescence as a framework for governance. The G20, not the G7, functioned as the forum for the coordination of fiscal stimulus efforts in the nadir of 2009. The same goes for the current GDP data. In 1980, the G-7 countries constituted about 51 percent of global production on a purchasing power parity basis; today, the G-7 claims just over 30 percent. The G-7 can no longer maintain a plausible pretension to run the world — it has become a niche organization.

And herein lies the real significance — and the real tragedy — of Trump’s petulant behavior. The point of the G-7, as Schmidt, Pompidou, and Ford all grasped, was to foster unity in a historical phase when geopolitical trends were corroding the West. Dialogue on common economic problems, all hoped, would offer an alternative source of cohesion. Or, as Kissinger explained in 1975: “The trick in the world now is to use economics to build a world political structure.”

For almost 40 years, the G-7 served this vital function. Through turmoil and triumph, the annual conclaves engendered unity — and papered over the cracks. Here again, Carter’s experience is illustrative. Ebullient at Bonn in 1978, Carter had difficult final summits at Tokyo in 1979 and Venice in 1980. Conflicts over energy, fiscal policy, and the end of detente roiled the two summits, producing blazing rows. Yet the G-7 members were, in the end, able to negotiate communiques that affirmed the basic unity of the Western countries. “The free democratic nations,”

Japanese Foreign Minister Saburo Okita declared, “were traveling in the same gondola.”

Today, it is the sense of unity the G-7 has cultivated that is imperiled. Configurations of power and interest are an insufficient basis for durable order among nations, as diplomatic historians well understand. The West cohered after 1945 not only because of shared enmities but also because its elites cultivated sociability and common values. From the Bilderberg Group to the Trilateral Commission, sociability proved both a source of cohesion and a salve for disagreements.

Functioning at the most elite level of all, the G-7 nurtured unity among the world’s liberal democracies through economic crises and geopolitical transition. Its debasing by a feckless U.S. president will serve only to tear the West’s fraying bonds of commonality still further asunder. In Beijing and in Moscow, the West’s rivals are cheering.

Crossposted from Foreign Policy