Is this episode over? Are any other trade policy threats on the horizon?
Biden’s team probably hopes it has done enough to protect its standard bearer against accusations of going soft on China, but that doesn’t mean that trade diplomacy is over for the year. US policy has been to systematically cultivate support from other Western governments for its approach to Chinese commercial relations. In this regard, developments at the G7 are what to watch.
Created in the 1970s and expanded, the G7 is a club of Europe’s four largest economies (France, Germany, Italy, and the UK), as well as Japan, Canada, and the United States. Their government leaders and ministers meet often. In fact, for some time now, US officials have sought to persuade counterparts in the G7 that Chinese industrial policies, subsidies, and outright trade restrictions are a first-order threat to Western living standards.
If last week’s G7 Finance Ministers and Central Bankers’ communiqué is anything to go by, the US has succeeded. The third paragraph of this declaration states: “We will enhance cooperation to address non-market policies and practices and distortive policies, including those leading to overcapacity through a wide range of policy tools and rules to ensure a global level playing field. While reaffirming our interest in a balanced and reciprocal collaboration, we express concerns about China’s comprehensive use of non-market policies and practices that undermine our workers, industries, and economic resilience.”
The way the G7 works is that prominent statements found high up in the Finance Ministers’ communiqué tend to find their way into their Leaders’ Declaration. Ultimately, the question is whether the G7 will back these words with deeds. A similar declaration in June 2023 by the US and five allies (three are G7 members) went nowhere — or, at best, can be viewed as coalition-building. Given the divisions in Europe between firms and governments over the merits of decoupling with China, concerted action by the G7 against China this year is far from assured.
Still, the fractures in the world economy are widening. Executives who operate or source from Chinese firms in sectors where there is said to be excess capacity in China should be on alert. Those sectors include, at minimum, aluminum, cement, construction, electric vehicles, solar panels, and steel. That Chinese exports blocked from the US can be deflected to other foreign markets means executives from Western Europe, Japan, and emerging markets need to keep trade policy developments on their radar as well.