Japan’s G7 economic agenda emerges in face of geopolitical gale

JAPAN’S Group of Seven (G7) presidency in 2023 has been dominated by the geopolitical gale that continues to blow from Ukraine. Yet the outlines of the economic agenda have become much clearer in April.

One of the defining priorities of Japan’s chairing of the event will be, ahead of COP28 in Dubai this November, promotion of the energy transition. And this will be a key feature of an Apr 15-16 ministerial meeting of the Western club. Tokyo has long been a leader on this important agenda and has developed numerous green alliances with powers across the world, including the European Union (EU), to try to deliver on decarbonisation while securing a stable energy supply and promoting economic growth.

G7 economic ministers will also discuss new evidence, including from the International Monetary Fund, that geopolitical tensions and growing international economic schisms could increase financial stability risks. The Washington-based economic watchdog has long warned of increased costs, economic friction and GDP output losses associated with the global economy fragmenting into geopolitical blocs centred around the G7 and wider Western democracies.

However, IMF highlighted last week the risks of geopolitics and fragmentation reducing cross-border investments and asset prices, while threatening payment systems and the banking system’s ability to lend. It cited here particularly big challenges for emerging market and broader developing nation economies.

Economic security, including export controls, are another key G7 economic platform this year for Japan. These issues were prominent in the first meeting on Apr 4 of G7 trade ministers in 2023, with the nations committing to enhance their outreach to international partners, including in the Global South, to boost supply chain resiliency, stressing factors such as transparency, diversification, trustworthiness and reliability in building more robust supply chains.

The move comes soon after Tokyo announced it will curtail exports of semiconductor manufacturing equipment. This echoes US moves in this area designed to impede Beijing’s defence and wider technological momentum that the G7 ministers last week said threaten “global, regional and national security”.

A broader issue that appears central to Japan’s G7 presidency, at the prompting of the United States, is economic security, particularly in a context of challenging coercion from authoritarian powers. An example sometimes cited here is China’s increasing tariffs on key Australian imports after Canberra pushed for an international inquiry into the origins of the pandemic.

However, the issue has also come onto the radar screen too, since the Ukraine war began with the G7 condemning Moscow’s intent to use Europe’s dependence on Russian oil and natural gas as a weapon. For instance, state-owned Gazprom cut gas deliveries last year to numerous nations, including France and Italy, just days after their leaders were in Kyiv to formally back Ukraine’s bid to join the EU.

The United States is already moving forward unilaterally on this agenda with a bill being considered in Congress, which would grant the nation’s president strengthened powers to counter Chinese economic coercion. However, the Biden team wants to explore joint G7 and wider economic action.

This G7 emphasis on economic security shows how, even though the body is most associated with financial affairs, its role as a geopolitical lynchpin has long been key, too. And this is assuming paramount importance some 14 months into the Ukraine war.

Spearheading the massive international package of sanctions against Moscow, the Western club has pledged never to recognise any redrawn boundaries for Ukraine; provided tens of billions in military and humanitarian assistance; and is currently looking at plans to rebuild Ukraine in what would be a mini-version of the post-war Marshall Plan which saw the United States-backed rebuilding of post-war Europe.

As well as this year’s G7 super priority of Ukraine, a second key focus for Japan in 2023 is what Japanese Prime Minister Fumio Kishida has called the “absolutely unacceptable” threat of nuclear proliferation, and it is therefore no coincidence that the leadership summit is being held in Hiroshima, where the United States detonated a nuclear bomb in 1945. These proliferation concerns have been raised recently in Europe with Russia threatening to potentially move atomic weaponry to Belarus.

However, the challenge of proliferation in Japan’s eyes is much broader, including in Asia. For instance, recent North Korean ballistic missile tests have raised concerns of a breakdown in security in the region.

These twin focal points of Japan’s G7 year are only the latest examples of the prominence of geopolitical and security issues in the Western club’s meetings. In recent years, the body has played a significant orchestration role in the West’s policies.

When Japan last held the G7 chair in 2016, for instance, there was a significant discussion of the geopolitics of the South China Sea. This prompted strong objections from Beijing, which claims much of the South China Sea, asserting that the G7 should focus its time on its founding mandate of global economic cooperation.

As this reaction indicates, the G7’s involvement in its geopolitical dialogues has met with significant international criticism from time to time. Nevertheless, Japan proposes to raise the issue of Asia’s security dynamics again this year. This is, in part, because it believes there are significant parallels between Russia’s invasion of Ukraine, and the belligerence it perceives of China, including towards Taiwan.

In this context, it is sometimes asserted, especially by developing countries, that the G7 lacks the legitimacy of the United Nations to engage in these geopolitical and security issues, and/or is a historical artefact given the rise of powers such as the BRICS (Brazil, Russia, India, China and South Africa). However, it is not the case that the international security role of the G7 is new.

The body helped coordinate Western strategy towards the then-Soviet Union. Its capacity for action here was shown when it played an important role in convincing Moscow to pull out the remnants of the Red Army from the Baltic States.

There are many international sceptics of the G7 producing any meaningful outcomes this year, including at the leadership summit in Hiroshima. However, the Western club has previously been at its best in times of crisis, tackling the big issues of the day. Indeed, the very fact that it was founded in 1975 in the aftermath of geopolitical and economic shocks when Washington had pulled out of the gold standard underlines it is potentially fit for purpose for today’s turbulence.

Taken together, this is why the Japan-hosted G7 will be dominated by geopolitics. Moreover, continuing uncertainty over the Ukraine conflict means this security role is not only likely to continue, but could yet grow.

Andrew Hammond is an associate at LSE IDEAS at the London School of Economics