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G-7 Nations Forge a Common Path to ‘De-Risk’ from China

G-7 Nations Forge a Common Path to 'De-Risk' from China

During a meeting in Hiroshima, Japan, the leaders of the Group of Seven (G-7) nations have reached a consensus that de-risking, rather than decoupling, from China is necessary. They acknowledged the challenges posed by China’s practices, which have been identified as distorting the global economy.

In a joint statement, the G-7 leaders clarified that they are not turning inward or seeking decoupling from China. However, they recognize the importance of de-risking and diversifying their economic resilience. The leaders expressed their intention to address China’s non-market policies and practices that distort the global economy. They also pledged to counter negative practices such as illegitimate technology transfer and data disclosure.

President Joe Biden reiterated this stance during a press conference, emphasizing the aim to de-risk and diversify the relationship with China. This entails diversifying supply chains to reduce dependence on a single country, resisting economic coercion, and countering harmful practices that harm workers. Protecting critical advanced technologies vital for national security is also a priority.

The U.S. Treasury Secretary, Janet Yellen, highlighted China’s behavior as a matter of concern during a previous meeting of G-7 finance ministers and central bank governors. Yellen pointed out China’s use of economic coercion in geopolitical disputes, citing trade disputes with Australia and Lithuania as examples. The G-7 leaders emphasized the importance of fostering resilience against economic coercion and protecting advanced technologies while maintaining trade and investment.

While acknowledging China’s role in the international community and the size of its economy, the G-7 leaders committed to reducing excessive dependencies in critical supply chains. They expressed their preparedness to engage with China candidly, conveying concerns directly while acting in their national interests.

Reports suggest that the Biden administration has briefed industry groups on measures to restrict American investments in China. Stricter guidelines may require U.S. companies to notify the government about new investments in Chinese technology firms, with bans on deals in critical sectors such as microchips. The United Kingdom also expressed openness to follow the U.S. lead in imposing curbs on Chinese investment.

Economists have noted that a widening rift between the U.S. and China could have significant economic implications. Damage to the Chinese economy could be considerable, potentially leading to disruptions in global supply chains. However, experts believe that China is likely to respond with economic pragmatism rather than severe retaliation.

The U.S.-China relationship may face further escalations following Washington’s recent trade negotiations with Taiwan. The bilateral agreement covers customs administration, trade facilitation, regulatory practices, anti-corruption measures, and support for small and medium-sized enterprises. China has repeatedly warned against deepening engagement between the U.S. and Taiwan.

Goldman Sachs suggests that the focus of U.S.-China tensions may shift from trade to military matters, particularly with regards to Taiwan. Efforts to enhance Taiwan’s military capabilities and potential congressional support in the U.S. Congress indicate a possible military focus in the future.

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