What is happening?
Just one month after the 50th G7 summit, the Group of Seven (G7) trade ministers met in Italy to discuss tackling China’s overcapacity and other trade practices – alas, without mentioning China explicitly. The two-day meeting concluded on July 17th with a final statement in which the representatives of Canada, France, Germany, Italy, Japan, the United Kingdom (UK), and the United States (US) vowed to “increase their monitoring of overproduction of electric vehicles (EVs), solar panels and other products whose industries receive government backing.”
What is the broader picture?
Affordable products made in China have been globally widespread for decades. Recently, China’s increasingly sophisticated yet economical products have started to pose a serious, if not existential, threat to domestic manufacturing in those economies that helped China become rich over the years. Electric vehicles (EVs) are currently one of the most illustrative examples of this trend.
Importantly, what makes technologically advanced EVs from China so cheap is unfair subsidization, which pushed both the US and the European Union to take action to level the commercial playing field.
In May, the U.S. decided to increase the tariff rate on EVs from 25% to 100%. In July, the European Commission imposed provisional countervailing duties on imports of EVs from China ranging from 17.4% up to 37.6%. Definitive measures must be imposed within four months. Canada is also considering imposing tariffs to tackle the so-called “oversupply” of Chinese-made EVs. On the other hand, the UK seems to be rather reluctant to follow suit, arguing that British firms had not complained about unfair practices from rivals. Japan also does not seem to move towards imposing tariffs on Chinese EVs. Despite divergent attitudes within G7, the ministers agreed that “economic resilience requires de-risking through diversification and reduction of critical dependencies” and stressed their willingness to use available trade tools (or to develop new ones) to “tackle non-market policies and practices, as well as harmful non-market excess capacity and other market distortions resulting from them.”
Why does it matter?
Apart from monitoring overproduction with government backing, G7 trade ministers agreed to share information on export controls on critical minerals, which could potentially threaten economic security. They expressed determination to prevent supply-chain disruptions and urged all countries to refrain from using economic coercion or weaponizing trade. After the meeting, Japanese Trade Minister Saito Ken said: “We’ve agreed to strengthen the international economic order based on rules. We also must never return to the era of ‘the survival of the fittest’ when rules didn’t matter.” However, even though the measures and declarations clearly address China, the official final statement of the G7 ministerial meeting does not mention China at all. This demonstrates the limits of more assertive collective action vis-à-vis Beijing which largely stem from economic entanglement of high-income economies with the PRC.
