The G7 is planning to tackle China in 3 ways—and it’s working on price caps for Russian oil

June 28, 2022, 2:38 PM UTC
U.S. President Joe Biden, Boris Johnson, Prime Minister of Great Britain, Fumio Kishida, Prime Minister of Japan, Ursula von der Leyen, President of the EU Commission, Charles Michel, President of the EU Council, Mario Draghi, Prime Minister of Italy, Justin Trudeau, Prime Minister of Canada, Emmanuel Macron, President of France, German Chancellor Olaf Scholz (SPD),on the last day of the three-day G7 summit.
U.S. President Joe Biden; Boris Johnson, U.K. Prime Minister; Fumio Kishida, Prime Minister of Japan; Ursula von der Leyen, President of the EU Commission; Charles Michel, President of the EU Council; Mario Draghi, Prime Minister of Italy; Justin Trudeau, Prime Minister of Canada; Emmanuel Macron, President of France; German Chancellor Olaf Scholz on the last day of the G7 summit.
Michael Kappeler—Picture Alliance via Getty Images

The Group of Seven’s uneasy relationship with China took a more openly confrontational turn on Tuesday when the advanced economies announced a series of unprecedented and overt challenges to Beijing following the G7 summit just concluded at Schloss Elmau, in Germany.

The G7, which includes the U.S., Germany, France, Italy, Japan, the U.K., Canada, and (as an official but “non-enumerated” member) the European Union, laid out three policy areas in which it would tackle China, encompassing market practices, human rights, and infrastructural investments in developing countries.

After the Bavarian G7 summit, U.S. President Joe Biden and the European participants headed over to Madrid for a NATO summit that will also place some focus on countering China—though Russia’s war in Ukraine will be the main immediate concern.

Here are the G7’s three main flash points with China.

Subsidies and market barriers

Last year’s G7 communiqué already talked about “consulting” on ways to challenge Beijing’s “nonmarket practices”—which was a first in itself—but the 2022 summit’s final statement went significantly further.

“We will build a shared understanding of China’s nontransparent and market-distorting interventions and other forms of economic and industrial directives,” the statement read, noting that countries outside the G7 would also be consulted.

“We will then work together to develop coordinated action to ensure a level playing field for our businesses and workers, to foster diversification and resilience to economic coercion, and to reduce strategic dependencies,” the communiqué read.

Labor rights

Similarly, while the 2021 statement called on China to “respect human rights and freedoms” in Xinjiang and said the G7’s leaders were “concerned by the use of all forms of forced labor in global supply chains, including state-sponsored forced labor of vulnerable groups and minorities,” this year’s language is again tougher.

The G7’s 2022 communiqué noted that forced labor in the Chinese provinces of Tibet and Xinjiang was “of major concern to us,” before making a commitment to “accelerating progress including through our own available domestic means and multilateral institutions with a view to remove all forms of forced labor from global supply chains, including state-sponsored forced labor.”

Soft-power plans

The statement also reiterated what was already announced Sunday: that the G7 countries will raise $600 billion to fund infrastructural development in developing countries.

When the new infrastructure push was announced—though it is really a relaunch of an initiative announced at last year’s G7—it was openly framed as a riposte to President Xi Jinping’s Belt and Road soft-power initiative, which the U.S. and others have frequently accused of indebting countries to China.

However, Tuesday’s G7 communiqué did not explicitly call out “China’s role in leaving, in particular, low- and middle-income countries in debt traps,” as a White House official briefed would be the case earlier in the day.

Russia, food crisis, and oil price caps

In a separate statement on Tuesday, the G7 leaders committed $4.5 billion more—making for a total of $14 billion this year—to combating the global food security crisis, which is being exacerbated by Russia’s blockade of Ukrainian exports.

They also addressed the issue of oil price caps.

At the moment, Western bans and phaseouts of Russian oil are helping to drive higher oil prices, which has the perverse effect of making Moscow more money to fund its war effort. Hence, the West is desperate to find a way to cap the amount of money that countries can pay for their Russian oil, while allowing the stuff to keep flowing to a degree that avoids shortages.

The big question there is how to get the rest of the world to play along. The U.S. has previously floated the idea of deploying so-called secondary sanctions against countries that continue to pay above the cap for their Russian oil, but—as this implies punishing countries for transactions that may not even touch the U.S. or its allies—that would be a drastic step.

The G7 communiqué talked about considering “a range of approaches, including options for a possible comprehensive prohibition of all services, which enable transportation of Russian seaborne crude oil and petroleum products globally, unless the oil is purchased at or below a price to be agreed in consultation with international partners.”

That likely refers to the idea of incentivizing countries to comply with the cap, by offering them an exemption from the incoming ban on maritime insurance for ships carrying cargoes of Russian oil.

The ban is being instituted by the EU and U.K., which have a lot of leverage in the maritime insurance market, but industry experts say insurers from other countries—such as China—will probably step in to fill the gap.

France was previously pushing for an oil cap that would limit prices of oil from all countries, but resistance from the U.S. and Germany reportedly led Paris to back down.

Next up: NATO summit

The NATO summit that started in Madrid on Tuesday afternoon will be crucial, not just because of Putin’s imperial war, but because it will produce the first major update to the alliance’s strategic concept in a dozen years. The 2010 version, agreed in Lisbon, didn’t refer to China at all, and called Russia a partner.

NATO Secretary-General Jens Stoltenberg has already accused China of joining Russia in “openly contesting the right of each and every country to choose his own path,” and the 2022 strategic plan is expected to label China “a challenge to our interests, our security, and our values.”

“China is not an adversary,” Stoltenberg told the Financial Times ahead of the NATO summit.

“But of course we need to take into account the consequences of China’s heavy investments in military capabilities, long-range nuclear weapons, and efforts to take control of our critical infrastructure when we address how to ensure NATO will remain the most successful alliance in history.”

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