As we move deeper into what some experts have coined the “post-globalization” era, the Group of Seven (G-7), comprised of the world’s leading economic powers, is evolving its approach to international trade and finance. The recent focus on creating a mutually beneficial partnership with developing nations to build resilient supply chains exemplifies this shift.
Economic Security: A Top Priority for G-7
The G-7, under Japan’s presidency this year, has prioritized economic security. This emphasis arises from the growing concern over China’s increasing control over critical components, perceived as a threat to the national security of other major powers. The recent G-7 finance chiefs’ agreement to launch a supply chain partnership by the end of this year, just days before the Hiroshima summit, is a significant move in this direction.
However, the G-7 finds itself in a delicate position regarding China, trying to strike a balance between being neither too punitive nor too lenient, while maintaining unity against Russia’s unprovoked aggression against Ukraine.
Tech Confrontation: A Call for Cooperation
The escalating technology standoff, primarily between the United States and China, calls for greater cooperation and a united front among the G-7 powers. The United States has taken a more aggressive stance against what Treasury Secretary Janet Yellen terms “economic coercion”. In contrast, Japan, though aware of its assertive neighbor, seeks a balanced approach given its significant trade ties with China.
The G-7’s plan aims to involve low- and middle-income countries more significantly in the supply chains of critical components necessary for decarbonization, such as electric vehicle batteries, solar panels, and rare earth materials.
Sustainable Growth: A Win-Win Strategy
The G-7’s strategy is designed to foster a win-win scenario. By encouraging investment and financial aid to developing nations, it hopes to stimulate the growth of domestic industries in these countries. This approach not only benefits these nations but also supports the global push for carbon neutrality through stable supplies of clean energy components.
While the G-7 leadership does not directly link this initiative to China, experts acknowledge that diversifying away from the world’s second-largest economy, or “de-risking,” remains a complex task.
Post-Globalization: A New Paradigm
In a post-globalized era, countries are beginning to intervene more actively in markets for political and national security reasons, replacing the previous hands-off approach in the name of free trade and deregulation. Both China and the United States employ economic influence to advance their national security interests.
However, as the G-7 chair, Japan faces the challenging task of keeping a watchful eye on China while preventing the United States from going too far.
Friendshoring: The Way Forward
“Friendshoring,” as advocated by Janet Yellen, offers an approach to diversify supply chains and open up trade and investment opportunities for developing nations. This idea is gaining traction as the G-7 seeks to strengthen its economic power in the face of China’s rising influence.
Conclusion: A Call for Global Cooperation
As the G-7 leaders prepare to tackle global challenges ranging from Russia’s aggression and food security to nuclear disarmament, economic security remains a key agenda item. The key to addressing these challenges lies not just within G-7 cooperation, but also in a constructive engagement with the Global South. The reshaping of supply chains in the post-globalization era requires a multi-faceted, cooperative approach that embraces this wider global community.