Top financial officials from the world’s advanced economies moved closer Saturday to an agreement on how to use frozen Russian central bank assets to help Ukraine and warned of China’s dumping of exports cheap on their markets, with the aim of mobilizing its economic power to face dual crises.
The adoption of sanctions and more ambitious protectionism came as finance ministers from the Group of Seven gathered for three days of meetings in Stresa, Italy. The proposals under consideration could widen the gap between the alliance of wealthy Western economies and Russia, China and their allies, thus worsening a global fragmentation that worries economists.
Efforts by the Group of Seven to influence the two powerful adversaries have had limited success in recent years, but the rich countries are stepping up efforts to test the limits of their combined economic power.
In a joint statement, or communiqué, issued on SaturdayPolicymakers have said they will remain united on both fronts as geopolitical crises and trade tensions have become the biggest threats to the global economy.
“We are making progress in our discussions on potential ways to bring extraordinary profits from stranded Russian sovereign assets to Ukraine,” the statement said.
Regarding China, finance ministers expressed concern about its “widespread use of non-market policies and practices that harm our workers, our industries and our economic resilience”. They agreed to monitor the negative effects of China’s overcapacity and “consider taking steps to ensure a level playing field.”
Growing concern over how to deal with Russia and China dominated three days of meetings on the shores of Lake Maggiore. The United States has advocated a tougher approach in managing Russian assets and Chinese exports, while European countries have been more cautious about their internal divisions.
Economic leaders spent much of their time mulling over the details of how they would go about unlocking the Russian central bank’s $300 billion worth of frozen assets to provide a flow of aid to more long term to Ukraine from next year.
“The main thing is to ensure adequate, solid and sustainable financing for the Ukrainian government,” Bruno Le Maire, the French Minister of Finance, said on the sidelines of the meetings on Friday. “They need our support and can count on the united support of all G7 countries. »
On Saturday, growing momentum built around a U.S. proposal to use windfall profits from these assets to create a loan for Ukraine that could reach $50 billion and be backed by some Group of Seven countries.
“That’s really the main option that’s being considered right now,” Treasury Secretary Janet L. Yellen said Saturday after the meeting. “There appears to be broad support for the general idea that this is a productive way forward.”
But questions remained, including how countries would share the burden of lending risk if interest rates failed, eroding the profits generated by the assets, and what would happen to the ready once the war is over. Another factor that complicates the use of assets to secure a long-term loan is that European Union sanctions allowing the immobilization of most of these Russian assets must be regularly renewed.
Finance ministers will work over the next three weeks to iron out the details of their options. They expect Group of Seven leaders to decide how to proceed when they agree in Italy next month.
The urgency to reach a deal has intensified as international war weariness has made it harder for the United States and Europe to continue providing aid programs to Ukraine. Impending elections around the world, and in America in particular, have increased pressure to provide Ukraine with a future funding stream.
“It would be nice to lock in this mechanism, so that whatever the outcome of the U.S. election, you have $50 billion to play with,” said Charles Lichfield, a senior fellow at the Atlantic Council.
Although Russia dominated the negotiations, concerns about the threat of excess Chinese industrial capacity remained significant. Policymakers fear that a flood of heavily subsidized Chinese green energy technology products could cripple clean energy sectors in the United States and Europe, leading to job losses and reliance on of China for solar panels, batteries, electric vehicles and other products.
President Biden last week increased tariffs on some Chinese imports, including levying a 100% tax on electric vehicles, and continued taxes on more than $300 billion in Chinese goods imposed by President Donald J. Trump. This week, Yellen called on Europe and the Group of 7 to confront China more forcefully over its trade practices.
“We need to be united and send a unified message to China so that they understand that it is not just one country that feels this way, but that they are facing a wall of opposition to the strategy that they are pursuing ” Yellen said at a press conference. press conference at the opening of the meetings.
European countries are conducting their own investigations into China’s trade practices and considering imposing more tariffs. However, they take different approaches and some countries, such as Germany, fear that a trade war with China could harm their own economies, which rely heavily on exports to the Chinese market. German Finance Minister Christian Lindner warned that trade wars were “about losing money”.
There have been indications this week that China and Russia are preparing their responses to the Group of 7 actions.
The Chinese Chamber of Commerce to the EU said on Tuesday that Beijing was considering a temporary increase in tariffs on car imports following new US tariffs and the prospect of new levies in Europe.
“This potential action has implications for European and American automakers. » wrote the business group.
At the same time, Russia is also mobilizing its response to Western plans to use its assets to help support Ukraine. A representative of the Russian Foreign Ministry described the idea of using profits from the assets as an attempt to legitimize the theft at the state level and said the European Union would feel the full extent of Russian retaliation.
President Vladimir V. Putin also signed a decree Thursday indicating that Moscow would seek to offset any losses it would suffer from the freezing of its sovereign assets by seizing U.S. property. Although Russia has little access to U.S. state assets, it could seize the property of private investors in Russia or funds deposited in Russian accounts.
Ms. Yellen on Saturday rejected Russia’s threats, noting that it had already warned that it would seize American assets.
“This is not going to stop us from moving forward and taking steps to support Ukraine,” she said.
However, European officials, where most Russian assets are held, remain aware of the potential repercussions. Paschal Donohoe, president of the Eurogroup, a club of European finance ministers, said the prospect of Russian retaliation was a frequent topic of discussion.
“It is of course always possible that Russia could take additional steps in the future,” Donohoe said, explaining that he was confident that Western allies had the authority to take the steps they were considering. “Any action we take regarding additional sanctions or economic measures will comply with international law.”
It is unclear whether the policies being considered by finance ministers will succeed in encouraging Russia or China to change course. Despite internal differences, ministers appear to agree that a united front is their best hope.
“The renewal of strong unity within the G7 is being forged amid challenges posed by Russia’s brutal aggression in Ukraine and China’s growing authoritarianism and economic woes,” said Mark Sobel, former longtime Treasury Department official and now chairman of the official United States Monetary and Financial Board. Financial Institutions Forum.
