Can the G7 “build back better?

| July 27, 2021

The recent G7 meeting and communique could signify success for US President Joe Biden in reclaiming diplomatic leadership on a surface level. Biden convinced both European and Asian allies to weave together an anti-China front and reinserted the United States into a global leadership position to ‘build back a better world’ (B3W).

Yet Biden’s strategy poses some important questions. Can this anti-China front based on common values sustain itself? And will the signature B3W initiative, taking the form of a ‘green silk road, provide a viable alternative to China’s Belt Road Initiative (BRI)?

Biden has taken important steps to show that the United States is back and ready to lead. He emphasised that shared values — democracy and rules-based liberalism — are what unite the United States with its allies. He also underscored the common perceived threat: the rise of an increasingly assertive China. He instilled a sense of urgency that democratic countries must work together to counter autocratic power.

Yet it is still not clear what the United States is prepared to do to re-establish and upgrade the multilateral system. Biden seems to have retained some of the key practices established under the Trump administration’s platform of economic nationalism and protectionism.

The United States still imposes tariffs on steel and aluminium, among other commodities, imported from ally countries. Biden is also turbocharging the ‘buy American’ campaign and his administration is focusing on bringing the supply chain ‘back home’. Biden is yet to signal any intention to appoint WTO appellate judges or re-join the Trans-Pacific Partnership.

The global infrastructure plan is the crown jewel of the US-led B3W initiative. G7 countries pledged to offer financing for infrastructure in developing countries. The initiative purports to prove that democracies ‘can come together and deliver for people in real ways’ — in supposed contrast to the BRI, which it alleges to be a vehicle for China’s self-interest that places recipient countries into debt traps. But there are critical questions about the B3W initiative, even at the current conceptional level.

First, the plan is projected to provide over US$40 trillion in finance by 2035. Yet it is unclear how Biden intends to garner bipartisan support at home when US domestic infrastructure spending was massively downsized.

Some have questioned affordability given record US debt, or whether the United States would recklessly ‘print dollars’ and ‘export inflation’. But these concerns may be unfounded. Given that many countries will struggle to economically recover post-COVID-19, inflationary pressure is expected to remain tame.

Once production fully resumes globally, inflationary pressure will subdue further, and a key issue then would be to sustain demand. And as a monetarily sovereign government, the Biden administration can pay for any spending denominated in the US dollar.

The real dilemma is whether national leaders, Biden especially, can convince domestic constituents on the idea of sizeable spending abroad. In the current political climate, this might amount to an impossible mission. Other G7 countries are meanwhile self-imposing fiscal austerity to varying degrees.

Second, while Biden espouses ‘no strings attached’, it is hard to imagine the United States won’t demand changes if recipient countries are deemed to be violating western standards, given the emphasis on democratic values that coalesce the G7 and underpin the ‘better world’.

The US track record also suggests that structural adjustments may be imposed as a conditionality of finance. Strong beliefs in the private sector and the dismissal of the efficacy of governments could also present tremendous challenges for the G7 to trust and work with public agencies in the developing world.

Third, the BRI has already launched 2600 infrastructural projects worth roughly US$3.7 trillion in the developing world. Intended as an alternative to the BRI, the G7’s infrastructural plan is unlikely to collaborate and cooperate with these Chinese-initiated projects. This could lead to repetitive, window-dressing, uncoordinated and even disorderly efforts to build global infrastructure.

Some may argue that the G7 plan could foster healthy competition with China to global benefit. But without appropriate collaboration and cooperation, competition can become inefficient and counterproductive.

G7 countries have the potential to marshal capital and expertise to undertake ambitious infrastructure projects. Japan, for example, has been contributing to infrastructure building in Southeast Asia. B3W does not have to be framed as an alternative countermeasure to China’s BRI.

The two could be competitive in some areas and complementary in others. Japan and Italy, for instance, have been part of the BRI, and it makes more sense to synergise efforts rather than pitting one initiative against the other.

Global challenges require a concerted multilateral effort. A multilateral system requires countries to recognise differences, manage conflicts and work cooperatively toward common goals.

Biden’s anti-China front is unlikely to effectively mobilise the cooperation that’s needed to cope with imminent global challenges, from the infrastructural deficit to climate change. The United States would be better placed to reclaim leadership if B3W were repositioned to lead the world toward a more sustainable future in a more inclusive way.

This article was published by the East Asia Forum.