Top financial officials from the world’s advanced economies on Saturday moved closer to an agreement on how to use Russia’s central bank’s frozen assets to help Ukraine and pledged to unite against dumping of cheap exports by of China in its markets, with the aim of mobilizing its economic power to face the twin crises. crises that weigh on the global economy.
The adoption of more ambitious sanctions and protectionism came as Group of 7 finance ministers gathered for three days of meetings in Stresa, Italy. The proposals under consideration could deepen the division between the alliance of rich Western economies and Russia, China and their allies, worsening a global fragmentation that has economists worried.
The Group of 7’s efforts to influence the two powerful adversaries have had limited success in recent years, but rich countries are making a renewed effort to test the limits of their combined economic power.
In a joint statement, or statement, expected to be released on Saturday, policymakers said they would remain united on both fronts as geopolitical crises and trade tensions emerged as the biggest threats to the global economy.
“We are making progress in our discussions on possible paths to anticipate windfall profits from Russian sovereign assets tied up for the benefit of Ukraine,” said the statement, which was reviewed by The New York Times.
Regarding China, finance ministers expressed concern about its “pervasive use of non-market policies and practices that harm our workers, industries and economic resilience”. They agreed to monitor the negative effects of China’s excess capacity and “consider taking measures to ensure a level playing field”.
Growing concerns about how to deal with Russia and China dominated the three days of meetings on the shores of Lake Maggiore. The US has been pushing for a tougher approach to dealing with Russia’s assets and China’s exports, while European countries have acted more cautiously as they navigate their internal divisions.
Economic leaders spent much of their time debating the details of how they would go about unlocking $300 billion in frozen assets from the Russian central bank to provide a long-term flow of aid to Ukraine starting next year. .
“The key point is to guarantee correct, strong and lasting financing for the Ukrainian government,” said Bruno Le Maire, French finance minister, on the sidelines of Friday’s meetings. “They need support and can count on joint support from all G7 countries.”
On Saturday, there was growing momentum behind a U.S. proposal to use windfalls from those assets to create a loan for Ukraine that could be worth up to $50 billion and be backed by some Group of 7 countries.
“It’s really the main option that’s currently being considered,” Treasury Secretary Janet L. Yellen said Saturday after the meeting. “There appears to be broad support for the general notion that this is a productive path forward.”
But outstanding questions remained, including how countries would share the burden of risk associated with the loan if interest rates fell, which would erode the profits generated by the assets, and what would happen to the loan when the war eventually ended. Another complicating factor in using assets to secure a long-term loan is that the European Union sanctions authorizing the immobilization of most of these Russian assets must be renewed regularly.
Finance ministers will race over the next three weeks to work out the details of their options. They anticipate Group of 7 leaders will decide how to proceed when they meet in Italy next month.
The urgency to reach a deal has intensified as international war fatigue has made it more difficult for the United States and Europe to continue delivering aid packages 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 good to block this mechanism, so that whatever the outcome of the US election, we have $50 billion to play with,” said Charles Lichfield, senior fellow at the Atlantic Council.
Although Russia dominated the talks, fears about the threat of China’s industrial overcapacity were high. Policymakers fear that a flood of heavily subsidized Chinese green energy technology products will harm the clean energy sectors in the United States and Europe, leading to job losses and dependence on China for solar panels, batteries, electric vehicles and more. products.
President Biden raised tariffs on some Chinese imports last week, including levying a 100 percent tax on electric vehicles, and maintained taxes on more than $300 billion in Chinese goods that President Donald J. Trump imposed . This week, Yellen called on Europe and the Group of 7 to more forcefully confront China over its trade practices.
“We need to come together 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 face a wall of opposition to the strategy they are pursuing,” Yellen said in a speech. press conference at the opening of the meetings.
European countries are pursuing their own investigations into China’s trade practices and considering more tariffs. However, they are taking different approaches and some nations, such as Germany, fear that a trade fight with China could be damaging to their own economies, which rely heavily on exports to the Chinese market. German Finance Minister Christian Lindner warned that trade wars “are all about losses”.
There were indications this week that both China and Russia are preparing their responses to the Group of 7’s actions.
The China Chamber of Commerce with the EU said on Tuesday that Beijing was considering a temporary tariff hike on car imports following new US tariffs and the prospect of new taxes in Europe.
“This potential action has implications for European and North American automakers,” the business group wrote.
At the same time, Russia is also mobilizing its response to Western plans to use its assets to help prop up Ukraine. A spokeswoman for Russia’s Foreign Ministry described the idea of using asset profits as an attempt to legitimize state-level theft and said the European Union would feel the full measure of Russian retaliation.
President Vladimir V. Putin also signed a decree on Thursday indicating that Moscow would act to compensate itself for any losses it incurred from freezing its sovereign assets by seizing U.S. property. Although Russia has little access to US state assets, it could pursue the property of private investors in Russia or obtain funds in Russian accounts.
Yellen rejected Russia’s threats on Saturday, noting that she had previously warned that she would seize U.S. property.
“This will not stop us from moving forward and taking action in support of Ukraine,” she said.
However, European authorities, where most of Russia’s assets are located, remain aware of the potential for repercussions. Paschal Donohoe, president of the Eurogroup, a club of European finance ministers, said the prospect of Russian retaliation had been a frequent topic of discussion.
“Of course, there is always the possibility that Russia could initiate additional measures in the future,” Donohoe said, explaining that he is confident that Western allies have the authority to take the steps they are considering. “Any action we take regarding any sanctions or any additional economic measures will respect international law.”
It is uncertain whether the policies finance ministers are considering will succeed in encouraging Russia or China to change course. Despite internal differences, they seem to agree that a united front is their best hope.
“The renewed strong unity of the G7 is being forged amid the challenges posed by Russia’s brutal aggression in Ukraine and China’s growing authoritarianism and economic problems,” said Mark Sobel, a former longtime Treasury Department official who is now the US president of the Official Monetary Council and Financial Institutions Forum.