G7 Gives First Definition to ‘Economic Security’
It is easy to be cynical about global summits like the Group of Seven (G7) leaders’ gathering in Hiroshima earlier this month, especially when they involve a parade of photo ops, 40-page communiqués, and few tangible solutions to global problems. But as I have argued before, summits serve a number of important functions, including setting an agenda for policy action within and among participating governments on critical global issues.
One such agenda item spotlighted at Hiroshima was “economic security.” In addition to mentioning the topic in the main communiqué, G7 leaders issued a separate statement on “Economic Resilience and Economic Security.” This is the first attempt at the international level to define a phrase that is gaining currency in many G7 countries but has lacked a clear and common definition, opening the term to misunderstanding and even abuse.
The G7 statement covers seven dimensions of economic resilience and economic security:
- Building resilient supply chains
- Building resilient critical infrastructure
- Responding to nonmarket policies and practices
- Addressing economic coercion
- Countering harmful practices in the digital sphere
- Cooperating on international standard-setting
- Preventing leakage of critical and emerging technologies
This list is a fair reflection of major risks in today’s global economy—from pandemic disruptions to cyberattacks to China’s more assertive use of its economic power—that warrant a collective policy response from the United States and its close allies. The statement makes no explicit mention of any particular country, but paragraph 51 of the main communiqué, which covers a range of China-related concerns, leaves little doubt which country was top of mind for G7 leaders.
The G7 has done a service by trying to put some definition on the fuzzy concept of “economic security,” not only by listing what specific policies fall within it but also by suggesting what it should not be construed to mean. This is important because the term lends itself to abuse at both its “economic” and “security” ends: the former by those who use it as a thinly veiled excuse for trade and investment protectionism, and the latter by those seeking to decouple economically from China or to weaponize economic activity in the name of national security. In this regard, it is encouraging that G7 leaders not only disavowed decoupling in favor of “de-risking” but also said in the preamble to the statement, “We affirm that our cooperation to strengthen economic resilience and economic security will be rooted in maintaining and improving a well-functioning international rules-based system.”
Yet some caveats to the push for economic security are in order. Policy action in the seven areas listed in the G7 statement is warranted but will clearly come with a cost. Almost by definition, the move from efficient supply chains to more resilient ones will raise prices for downstream producers and final consumers. Effectively countering China’s economic coercion—especially if that involves retaliation, but even the kind of resilience and relief measures CSIS recommended in a recent report—will have consequences for G7 countries that act on it. Disrupting trade in semiconductors and other sensitive technologies through export controls will impose costs on those industries and their customers at home.
When risks increase in our daily lives, we accept the need to pay higher insurance premiums or invest in a new home security system to mitigate those risks and enjoy greater peace of mind. But how much of a cost are we willing to bear? When my son got his driver’s license, increasing risks to our family, I was willing to top up our automobile insurance, but if the premiums had doubled, I would have taken away the keys and made him walk. I suspect this is the way most people in G7 countries will react if told that they have to pay too high a price for economic security, especially at a time of still-high inflation. Governments should be more transparent about the cost of the economic security measures they are proposing.
One additional concern about the G7 definition of economic security is that it mainly focuses on defensive measures; it doesn’t put enough weight on the need for the United States and its close partners to offer an affirmative vision for the global economic order. The 44 allied representatives who met at Bretton Woods in 1944 did not use the term “economic security,” but if asked what it meant, they would not have talked first about export controls or hardening critical infrastructure, but rather about establishing a set of institutions, rules, and norms to guide international economic exchange and avoid the failures of the prewar period. The order they created has been overwhelmingly positive for the prosperity and security of the world over the past seven decades; upholding and updating the international institutions and rules that underlie it—including by negotiating new trade agreements, offering development assistance, and other affirmative policies—are essential to ensuring economic security today.
I have written before about the need for the United States to be more confident in its foreign policy. To be sure, risks in today’s global economy have risen, and countries need to buy a little more insurance through sensible policies like those described in the G7 statement on economic security. But the United States should not hunker in fear or sacrifice the sources of its prosperity at the costly altar of either protectionism or weaponization of economic policy.
Three years ago, my colleague Mark Sobel and I argued that the G7 needed a reset—including by adding the Republic of Korea (ROK) and Australia as permanent members. Those two countries have become regular participants in the annual summit in recent years and have demonstrated a commitment to its mission and objectives, not only in their words but in their concrete policy actions. For these reasons—and not as a mere political gesture, which is the grave mistake the G7 made 20 years ago when it prematurely invited Russia into the group—it is past time to make the ROK and Australia permanent members of what might be called simply “the G Plus.”
Matthew P. Goodman is senior vice president for economics at the Center for Strategic and International Studies in Washington, D.C.