Top financial officials from the world's richest countries moved closer to an agreement on Saturday on how to use Russia's frozen central bank assets to help Ukraine, warned China against dumping cheap exports into its market and sought to pool their economic might to tackle the twin crises.
The more ambitious embrace of sanctions and protectionism was under the eye of G7 finance ministers gathering for a three-day meeting in Stresa, Italy. The proposals under consideration could deepen the divide between wealthy Western countries and their alliances with Russia, China and their allies, exacerbating global divisions that economists fear could occur.
While efforts by the G7 to influence the two biggest rivals have had limited success in recent years, developed countries are taking new steps to test the limits of their economic power.
In a joint communique issued on Saturday, policymakers said they remained united on both fronts as geopolitical crises and trade tensions emerge as the biggest threats to the global economy.
“We are in discussions about possible ways to accelerate the transfer to Ukrainian interests of the enormous benefits arising from the immobilization of Russian state assets,” the statement said.
Regarding China, the finance ministers expressed concern about its “comprehensive use of non-market policies and practices that undermine the resilience of workers, industries and the economy.” They agreed to monitor the negative impacts of China's excess capacity and “consider measures to ensure a level playing field.”
Growing concerns over dealing with Russia and China were the focus of the three-day conference on the shores of Lake Maggiore, with the United States taking a tougher stance on Russian assets and Chinese exports while European countries are treading more cautiously as they navigate domestic disputes.
Economic leaders spent much of the time ironing out the details of how to proceed with releasing $300 billion worth of frozen Russian central bank assets to provide long-term support to Ukraine starting next year.
“The key is to ensure that the Ukrainian government has adequate, strong and long-term financing,” French Finance Minister Bruno Le Maire said on the sidelines of the meeting on Friday. “They need our support and they can count on the united support of all G7 countries.”
By Saturday, there was growing support for a U.S. proposal to use windfall profits from those assets to provide Ukraine with loans worth up to $50 billion, backed by some of the Group of Seven countries.
“This is the main option that's on the table right now,” Treasury Secretary Janet L. Yellen said after the meeting on Saturday. “There seems to be broad support for the general idea that this is a productive way forward.”
But unresolved questions remain, including how the countries will share the risks of lending if interest rates fall and the returns on the assets reduce, and what will happen to the loans once the war ends.Another complicating factor in using the assets to back long-term loans is that European Union sanctions that allow most Russian assets to be locked up must be periodically renewed.
Finance ministers will be busy over the next three weeks working out the details of their options, and they expect a decision on how to proceed will be made at the G7 summit in Italy next month.
International war fatigue is making it difficult for the United States and Europe to continue providing aid packages to Ukraine, increasing the urgency of reaching an agreement. Looming elections around the world, especially in the United States, are increasing pressure to provide Ukraine with financial aid in the future.
“If this is managed well, it would leave $50 billion at the disposal of the government regardless of the outcome of the US presidential election,” said Charles Lichfield, a senior fellow at the Atlantic Council.
Though the talks were led by Russia, they also highlighted concerns about the threat of Chinese excess industrial capacity. Policymakers worry that a flood of heavily subsidized Chinese green energy technology could cripple the clean energy sectors in the U.S. and Europe, leading to job losses and dependency on China for products such as solar panels, batteries and electric vehicles.
President Biden last week increased tariffs on some Chinese imports, including a 100% tax on electric vehicles, while leaving in place taxes on more than $300 billion in Chinese products imposed by President Donald J. Trump. Yellen this week called on Europe and the Group of Seven nations to confront China more forcefully over its trade practices.
“We need to come together and send a unified message to China so that they understand that they are not alone in feeling this way, that they are facing a wall of opposition to the strategy that they are pursuing,” Yellen said at a press conference at the start of the meeting.
European countries are conducting their own investigations into China's trade practices and are considering raising tariffs, but they are approaching it differently, and some, such as Germany, are concerned that a trade war with China would damage their economies, which are heavily reliant on exports to the Chinese market. German Finance Minister Christian Lindner has warned that a trade war is “a losing proposition.”
There were signs this week that both China and Russia were preparing responses to the G7's actions.
The China-EU Chamber of Commerce said on Tuesday that Beijing was considering a temporary tariff hike on auto imports in response to new U.S. tariffs and possible new taxes in Europe.
“This potential measure will affect automakers in Europe and the United States,” the industry group wrote.
At the same time, Russia is taking countermeasures against Western plans to use Russian assets to maintain Ukraine. A Russian Foreign Ministry spokesman said the idea of using the profits from the assets was an attempt to justify theft at a state level, and that the European Union would face the full force of Russian retaliation.
President Vladimir V. Putin also signed a decree on Thursday suggesting that Russia will take steps to compensate for losses suffered from the freezing of its sovereign assets by seizing U.S. assets. Russia has little access to U.S. sovereign assets, but it can go after the assets of private investors in Russia and funds held in Russian accounts.
Yellen on Saturday denied the Russian threats, noting that Russia had already warned it would seize U.S. assets.
“That does not deter us from taking action to support Ukraine,” she said.
But officials in Europe, where most Russian assets are held, are still mindful of the possibility of repercussions. Pascal Donohue, chairman of the Eurogroup, a club of European finance ministers, said the possibility of Russian retaliation had been discussed frequently.
“Of course, there is always the possibility that Russia could take additional steps in the future,” Donohue said, explaining that he believed Western allies had the authority to take the steps under consideration. “Any steps we take, whether it be in terms of any sanctions or additional economic measures, will respect international law.”
It is unclear whether the policies being considered by finance ministers will be successful in persuading Russia or China to change course, but despite their internal differences, ministers seem to agree that unity is their best hope.
“A new and strong G7 unity is being forged amid challenges posed by Russia's brutal aggression in Ukraine and China's growing authoritarianism and economic problems,” said Mark Sobel, a former senior Treasury official who now chairs the American Financial Corporation Forum.
