G7 Leaders Aim to De-risk, Not Decouple from China

G7 Leaders Aim to De-risk, Not Decouple from China

Leaders of the Group of Seven (G7) have agreed that it is necessary to de-risk, not decouple from China, and have acknowledged challenges posed by the country’s practices that “distort the global economy.” In a joint statement, the G7 said they are not looking to decouple or turn inwards; instead, they recognize that economic resilience requires de-risking and diversifying. The leaders added that they will seek to address the challenges posed by China’s non-market policies and practices that distort the global economy. They will counter malign practices such as illegitimate technology transfer or data disclosure. The G7 leaders agreed to foster resilience to economic coercion and to protect certain advanced technologies that could be used to threaten national security without unduly limiting trade and investment.

Steps to Diversify and De-risk Relationship with China

President Joe Biden explained that de-risking and diversifying means taking steps to diversify supply chains so that the US is not dependent on any one country for necessary products. It means resisting economic coercion together and countering harmful practices that hurt workers. It means protecting a narrow set of advanced technologies critical for national security. The G7 leaders emphasized the need to cooperate with China, citing its role in the international community and the size of its economy. They stand prepared to build constructive and stable relations with China, recognizing the importance of engaging candidly with and expressing concerns directly to China. President Biden’s administration previously briefed industry groups such as the Chamber of Commerce on measures to curb American investments into China.

Potential for Further Escalation in US-China Relations

The impact of a widening rift between the US and China may lead to further damage, economists at Allianz said in a note. They wrote that the economic implications of a further decoupling between the West and China could be far-reaching, and the damage to the Chinese economy could be far from negligible. China could retaliate by curtailing the supply of critical raw materials in which it has a dominant position, which could severely disrupt global supply chains. However, this is unlikely as it already applies some forms of outbound investment restrictions and is still looking towards economic pragmatism. Further escalations could potentially lie ahead for US-China relations after Washington concluded negotiations with Taiwan on a number of trade items recently. This marks a potential deal on the first part of the bilateral “21st Century Trade” initiative.

Overall, the G7 leaders have reaffirmed their commitment to diversify and de-risk their relationship with China and counter its non-market policies and practices. They recognize the importance of engaging candidly with China and building constructive and stable relations while protecting national security. However, the potential for further escalation in US-China relations remains as the US concludes negotiations with Taiwan on trade items, shifting the focus from trade to military.

World

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