The G7-Summit delivered more than expected


Over 3 days at this year's G7 summit under the German presidency the heads of government of the United States (USA), Great Britain, France, Germany, Italy, Japan and Canada - met in a castle tucked away in the Bavarian Alps. They were joined by the President of the European Commission and, as guests, the heads of government of India, South Africa, Indonesia, Argentina and Senegal. President Zelensky was also present as a virtual guest.

Major challenges on many fronts

It has been a long time since the world waited with such tension for the outcome of the G7 summit as it did this year. Indeed, much is at stake. Alongside the long-standing challenges - climate change, pandemic and the resulting supply chain problem - is inflation in the Eurozone and the U.S., which is being fueled (but not caused) by Russia’s brutal war of aggression against Ukraine. Russia’s instrumentalization of hunger by blockading Ukrainian grain exports is also especially challenging.  The reaction of the Western world, headed by the G7, must be a forceful one.

A very important role is accorded to support for Ukraine, both during the war and planning rebuilding afterwards. It has become clear that anything other than a Ukrainian victory and a lasting peace cannot be in the interests of the G7. Moreover, the G7 countries have pledged to provide large sums of money for humanitarian aid and reconstruction of Ukraine – potentially funded in part by seized Russian foreign reserves and other assets. In addition, Russian dissidents will be offered asylum.

The G7 countries want to use sanctions to keep the cost of the war high for the Russian government. Specifically, they plan to refrain from buying Russian gold; this is likely to be symbolic rather than impactful. In addition, the G7 countries plan to agree on an oil price cap and enforce it through transporters. There is considerable doubt about the effectiveness of this instrument, particularly its enforceability given the global nature of the oil trade. The alternative would be a tariff on oil and gas imports from Russia, which could act like an optimal tariff and force Russia to lower prices for G7 consumers if it wanted to continue selling gas and oil to the West.

Unfortunately, it was not possible to convince the guests from Africa, Asia and Latin America to cooperate on sanctions. At least they agreed in principle to a joint declaration on the importance and resilience of democracy. The declaration emphasizes the importance of democratic structures both for solving global problems and for internal governance.

Billions more are earmarked to combat hunger, as well as numerous other measures, including to increase productivity. It has been clearly stated that sanctions against Russia are not directed against agricultural exports; a necessary clarification since Russian propaganda has effectively denied the blockade the Russian navy has imposed on Ukrainian Black Sea exports. The G7 also appealed to other countries to lift their export bans. The summit's final document announced further funding and vaccines for the global South.

Climate change and infrastructure

Two documents are dedicated to climate protection. Of course, it is problematic to negotiate the effective increase in the price of fossil fuels as a means of climate policy in times of rising energy prices and unusually high inflation. Nevertheless, the German government has managed to put the issue on the agenda and even set in motion an agreement to establish a climate club, i.e., a close coordination of countries that are active in climate policy, including trade policy measures vis-à-vis those that are not actively engaged in climate protection.

Finally, it is worth mentioning that in the G7 Leaders Communique, the G7 countries have committed themselves, firstly, to helping mobilize $600 billion for infrastructure projects and, secondly, to strengthening the global trade order with open markets. The G7 puts emphasis on the importance of the WTO and its reform. They address the issues of subsidies to state-owned enterprises (SOEs), as well as green and climate friendly trade in addition to dealing with human rights and social issues in trade.

There is a pledge to support open markets, which is particularly important against the background of ongoing supply chain distortions owing to the lockdown in China and some G7 countries’ increasing dependence on commodities imported from non-democratic countries. The G7 have produced a document with strategies to secure access to raw materials, in line with OECD guidelines.

Systemic competition

However, it is unclear how the G7 will deal over the long-term with the increasing systemic competition with China, Russia and other autocratic countries while retaining the open-markets pledge – which includes all countries. Policies to restrict trade to democratic partners and close down markets for products from autocratic countries need to be carefully calibrated. On the one hand, Western democracies do not want to find themselves, as key European states now do vis a vis Russian energy, in a position of heavy reliance on powers that won’t hesitate to mobilise trade as a weapon. The same applies to investments into dual-use technology sectors by SOEs from authoritarian countries that may wish to revise the rules governing the international economic order in ways inimical to (admittedly broadly-defined) western democracies’ norms.

On the other hand, maintaining open international markets is the cornerstone on which the liberal international economic order is built. The more western democracies restrict access to their domestic markets on the grounds of countering authoritarianism, the more their citizenries will seize upon these actions, which in turn will be mobilized by populist politicians. The end result is likely that western democracies become increasingly akin to the very authoritarian powers they seek to constrain.

So, what is the appropriate balance? Australia, widely regarded as the ‘canary in the coalmine’ regarding western democracies managing China’s rise, offers an interesting case-study. Over the last 5 years or so investment screening has been tightened, laws to combat foreign political influence rolled out, and export diversification pursued through a doubling down of various trade agreements, from traditional free trade agreements to critical minerals partnerships. Tightening and loosening go hand in hand, in a significant recalibration of market access conditions and opportunities. Europe’s policy of Open Strategic Autonomy is on a very similar course, and we can trace the same arc in the US.

Constructive ambiguity?

Returning to the G7 agreements, it is true that the agreements are vague. But that has long been typical of G7 summits. At least in this instance there were announcements of actions backed up with promises of money. Clear statements were made on the question of democratic attitudes and on dealing with Russia. The unity of the summit participants was palpable throughout, and was carried over into the subsequent NATO summit. At the NATO summit four Indo-Pacific democracies (Australia, Japan, New Zealand, and South Korea) joined the discussions, thus widening the arc of concern to the Indo-Pacific. This comes on top of various European countries’ issuing Indo-Pacific strategies last year, as well as the EU’s own strategy for the Indo-Pacific released this February. Clearly the issues addressed by G7 leaders are more widely shared.

All told, a constructive outcome

Against this background, the sometimes sharp criticism of the results of the summit is unjustified. In fact, regarding the overall package a predominantly positive verdict can be reached. This is all the more true given that the G7 summit was only one part of a small summit marathon at which essential questions of future cooperation between Western countries is being clarified and, with a few exceptions, the participants demonstrated strong unity. Of course, it would be important for the measures announced in the documents to be implemented. Then the G7 countries would have made a significant contribution to global peace and prosperity, perhaps even acknowledged in places where people are currently skeptical about the West.

Andreas Freytag, Professor and Chair of Economic Policy, Friedrich Schiller University, Jena and Visiting Professor with IIT

Peter Draper, Executive Director of the Institute for International Trade and Deputy Dean (International), Faculty of Arts, Business, Law, and Economics, University of Adelaide.

Photo by Yohan Marion on Unsplash

Tagged in Opinions

IIT is a global leader in researching, analysing and commenting on International Trade.

Stay informed about our up-and-coming seminars, events, publications, awards, new projects and collaborations, and other exciting news.

Subscribe to IIT news