The G7 Summit: Build back better

The G7 summit is set to take place 11-13 June in the UK under the banner of build back better and there is anticipation as to what will be discussed and possibly decided. The G7 is comprised of leaders of seven nations: UK (host), Canada, France, Germany, Italy, Japan and the U.S. This year there are an additional four invitees: Australia, India, South Africa and South Korea.

The agenda is coming together with a likely focus on climate change and the global pandemic response, with a fair amount of conjecture as to what else might be discussed. The more contentious issue that is seemingly on the proposed agenda is free trade, which may put the spotlight on China.

Top of the agenda: The global pandemic response

One clear area of focus will be responses to the pandemic, both to the current health crises but also to plan for future pandemic outbreaks. The initial discussions will centre on the current outbreak and ensuring vaccines are available to all countries in a way that does not bankrupt the poorer nations of the world. To that end, there will be discussions about potentially forgiving the debt of poorer nations to put them in a financial position to build back their economies without the yoke of large debt burden. It will be interesting if this comes to pass, but as it is a topic of discussion, some form of foreign aid seems likely. Other pandemic discussions will centre around planning a more coordinated response to any future outbreaks or pandemics.

Spotlight on the U.S. – will President Biden support climate change action?

With the change in the U.S. administration, there is an expectation that there will be support from President Joe Biden for climate change action by the G7. In February, he pledged that the U.S. would rejoin the Paris Climate Accord. Front and centre will be affirming lowering the targeted limit of temperature increase from the current 2 degrees Celsius to 1.5 - showing a tougher and more aggressive approach to a globally coordinated approach to climate change. To help accomplish that objective, there have been discussions to stop financing coal firing power plants in poorer countries by the end of 2021. These initiatives have been agreed upon by the ministers of the G7 countries but will be affirmed by world leaders in June. Additionally, you might expect to hear agreement on setting aside 30% of land for nature.

The role of China in its efforts to promote global free trade

The possibly more contentious discussions could be in the area of free trade. If you include invitee Australia into the mix, China has active trade issues with three of the attendees and tension with most of the remaining countries in the G7. There were many that thought the Biden administration would take a more conciliatory approach to China than the prior administration. This was not our expectation, and while we may have seen a change in tone, we have seen no evidence of any significant policy change. In fact, very recently the U.S. administration has signalled a move from cooperation to competition. This new framing of the Sino-American relations may mean that the G7 may more directly address the role of China in their efforts to promote global free trade. If this comes to pass, this may be the area of the G7 agenda that leads to potential surprises. Also of note, Dominic Raab, the host country’s First Secretary and Foreign Secretary, has been an outspoken critic of China with regard to Hong Kong, human rights and trade issues.

The bottom line

In the lead-up to this meeting, there has been a tremendous amount of effort expended in the various ministerial work streams with relation to climate change, trade and pandemic response. The base expectations for the conference itself are for an affirmation of the results of all that work. It would seem the wild card may be in the area of trade and how the G7 wants to address the growing global impact of China.

Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.