The finance leaders of the Group of Seven (G7) advanced economies are considering strategies to strengthen global supply chains and reduce their dependence on China, according to German Finance Minister Christian Lindner.
This topic emerged as a key focus during a three-day G7 meeting in Niigata, Japan, where the need for more resilient supply chains was discussed.
G7 to diversify supply chains through partnerships
Japan has spearheaded efforts to diversify supply chains away from China by establishing partnerships with low- and middle-income countries through investment and aid.
Germany, among others, is eager to lessen its dependency on China, with Lindner emphasizing the importance of emerging and low-income countries in this process.
Despite a general consensus among the G7 nations on the partnership deal to bolster supply chains, they diverge on the extent to which they should counter China, the world’s second-largest economy that is not a G7 member.
The United States, led by Treasury Secretary Janet Yellen, has been advocating for stronger measures, including targeted investment controls against China, which Yellen believes exercises “economic coercion” against other nations.
Conversely, Germany is hesitant to form a united G7 front against Beijing, given its substantial trade reliance on China.
Japan shares similar concerns, as it remains cautious about implementing investment controls due to their potentially severe impact on global trade and the Japanese economy.
A Japanese finance ministry official present at the G7 talks clarified that Japan’s initiatives were not aimed at any specific country.
British Finance Minister Jeremy Hunt, in an interview with the Nikkei newspaper, emphasized the need for the G7 to counter China’s economic coercion but made no mention of investment controls.
Dealing with the US debt ceiling crisis
The ongoing US debt ceiling stalemate overshadowed the G7 meeting, as the member nations can ill-afford additional risks to their already fragile economies.
Concerns were raised over the potentially disastrous consequences if the US fails to resolve the impasse, which could push its economy into recession.
A meeting between US President Joe Biden and top lawmakers was postponed until early next week, as they continue seeking a compromise to avoid a catastrophic default.
Lindner expressed hope that US politicians would arrive at a “grown-up” decision on raising the $31.4 trillion debt ceiling, the maximum amount the US government is authorized to borrow.
World Bank President David Malpass warned that the risk of a US default compounds the issues already facing the global economy, which is entering a prolonged period of slow growth.
He predicted that global growth might fall below 2% in 2023 and remain low for several years due to rising borrowing costs and high levels of debt.
Persistently high inflation has led US and European central banks to aggressively raise interest rates, putting pressure on their economies and heightening fears of financial instability following the failure of three US banks.
The G7 finance leaders will discuss the health of the global financial system and measures to prevent another digital bank run during their meeting. They are expected to issue a joint statement when the three-day meeting concludes on Saturday.
**The contents of this article were inspired by a report from Reuters.
