Trade disputes cast chill over G7 leaders' summit in Canada

By David Ljunggren

OTTAWA, June 6 (Reuters) - Top U.S. allies are set for a showdown with Washington at this week's G7 summit in Canada as the Trump administration shows no sign of backing down from protectionist policies that have upset trading partners and unnerved investors.

The meeting on Friday and Saturday (Shenzhen: 002291.SZ - news) in Charlevoix, Quebec, will be the first chance G7 leaders have had to confront President Donald Trump in person since U.S. tariffs on steel and aluminum imports from Canada, Mexico and the European Union were imposed last week.

Two sources in Ottawa said divisions between the United (Shenzhen: 000925.SZ - news) States and other G7 members were so great that senior officials in charge of each nation's preparations planned to hold an unusual additional meeting the night before the summit in a bid to find consensus.

"I know we're going to have some very, very frank conversations quite clearly around the table," Canadian Prime Minister Justin Trudeau told Canada's Global TV in an interview broadcast on Wednesday.

Canada and Mexico have retaliated against a range of U.S. exports that include pork, bourbon and steel, and the EU has promised to do so as well, raising the specter of a tit-for-tat trade war that could damage the world economy.

Trudeau added that he would convey Canada's displeasure over the metal tariffs personally when he met Trump at the summit.

Expectations for a resolution of the trade row are low after finance leaders from the United States' G7 partners butted heads with U.S. Treasury Secretary Steven Mnuchin at a meeting last week in the Canadian resort town of Whistler, British Columbia.

U.S. stocks, apart from those of steel and aluminum producers, have fallen sharply in response to Trump's announcements of tariffs and other measures against trading partners. U.S. stocks were trading higher on Wednesday.

The G7 groups Canada, the United States, Japan, Britain, Italy, France and Germany. The EU also attends.

DEFENDING WORKERS

There is no evidence that Trump, who says his hard line on trade is necessary to protect U.S. industry and workers from unfair international competition as part of an "America First" agenda, will tack a conciliatory direction at the summit.

The U.S. president has ramped up his criticism of U.S. trading partners, particularly Canada, and demanded major concessions from Canada as well as Mexico in the slow-moving talks to update the North American Free Trade Agreement.

And White House officials are discussing ways to ramp up the penalties on Canada over Ottawa’s threat to levy tariffs next month on C$16.6 billion ($12.86 billion) in U.S.-made products, the Washington Post reported, citing unnamed officials.

Canadian Trade Minister Francois-Philippe Champagne told reporters in Ottawa he was not aware of the report but vowed Canada would '"always be there to defend" its workers.

"The point is to make sure we have an open dialogue, that we are at the table with them, positive, constructive, but very firm," he said.

Adding to the cloud over the summit is European anger over Trump's decision to pull the United States out of the international nuclear agreement with Iran. European allies have urged Trump to reconsider the move.

Ministers from Germany, France and Britain have already written to U.S. officials urging them to shield European companies working in Iran from getting caught up in Washington's new sanctions on Tehran.

German Chancellor Angela Merkel said on Wednesday she expects "difficult discussions" at the summit in Quebec.

"I will of course try to speak to the U.S. president about the current problems that we have overall, in particular on Iran and on trade tariffs," Merkel told the Bundestag lower house of parliament during a question-and-answer session with lawmakers. ($1 = 1.2911 Canadian dollars) (Reporting by David Ljunggren in Ottawa and Paul Carrel and Madeline Chambers in Berlin Writing by Paul Simao Editing by Alistair Bell)