Five priorities for G7 to strengthen economic security

Japan’s G7 presidency is a chance to narrow differences on economic security, strengthen member coordination, and step-up engagement with non-G7 countries.

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Published 18 May 2023 3 minute READ

Marianne Schneider-Petsinger

Former Senior Research Fellow, Global Economy and Finance Programme; Project Director, Global Trade Policy Forum

Economic security is a central theme of Japan’s G7 presidency as an increasingly important dimension of national security, and Japan is keen to strengthen international collaboration to bolster its burgeoning economic security policies.

The country is at the forefront of recent economic security developments, introducing the Economic Security Promotion Act in 2022 and creating a cabinet-level minister for economic security. But other countries and blocs are also advancing their own economic security agendas.

The Donald Trump administration first introduced the notion that ‘economic security is national security’ as part of the 2017 US National Security Strategy. Since then, China’s growing assertiveness and Russia’s invasion of Ukraine highlight that threats to economic security are rising.

The European Union (EU) is developing its toolbox to strengthen supply chain resilience, export controls, and investment screening as well as tackle non-market policies and economic coercion. And the European Commission will soon present a new Economic Security Strategy.

There is a growing recognition that strengthening economic security requires cooperation with like-minded partners. At the 2022 G7 summit, leaders committed to enhance collaboration and explore mechanisms to improve economic security. The 2023 G7 summit could advance a cooperative agenda on economic security by prioritizing five aspects.

1. Advance the concept of economic security

G7 leaders must develop a better understanding of what each member means by economic security as they do not see eye-to-eye in determining how far the scope of national security should stretch into the sphere of economic activity. The US adopts a more expansive logic of economic security but the EU is wary of an excessive securitization of the economic realm – given concerns about the implications for open trade and multilateralism.

There is a growing recognition that strengthening economic security requires cooperation with like-minded partners

The degree to which G7 members frame the economic security debate around China also differs greatly. The US is inclined to single out China but Japan and the EU prefer a more ‘actor-agnostic’ approach.

To advance discussions at the G7, a China-centric understanding of economic security should be avoided. Instead, a focus on specific practices such as economic coercion or goals such as strengthening supply chain resilience has a better chance of success.

2. Manage trade-offs better

Tensions between economics and national security require a careful balancing act. For example, introducing trade restrictions in the name of national security could reduce the benefits of an open economy. Moreover, the wider and more frequent use of ‘national security exceptions’ by members of the World Trade Organization (WTO) risks undermining the rules-based trading system.

Another point of friction arises from policies which strengthen domestic economic security but have unintended and adverse effects on like-minded partners. A case in point is the recent discord – and eventual agreement – between the US, the Netherlands, and Japan over the Biden administration’s semiconductor export controls on China.

G7 members also need to balance competition and cooperation for the critical minerals with a key role in the transition to green and digital economies. Although greater cooperation and ‘friendshoring’ among G7 members can help reduce dependencies on China, the competition for critical minerals will be fierce even among friends.

3. Focus on coordination not joint instruments

The range of issues that fall under the concept of economic security is vast and continuously expanding, but the focus of current international collaborative efforts is strengthening supply chain resilience and tackling economic coercion. Coordination on the former is most likely to result in concrete action.

The latter refers to the use or threat of using economic leverage to punish or pressure a foreign country for political gain or policy concessions – as seen by China’s tactics against Australia, Lithuania, and Japan among others.

Tokyo is keen to formalize cooperation on anti-coercion among G7 countries. However, reaching political consensus on what constitutes economic coercion is more realistic – albeit challenging – than a shared G7 anti-coercion instrument.

International collaboration has lagged on investment screening. Historically there has been minimal coordination on scrutinizing inbound foreign direct investments (FDI) on national security grounds, and outbound FDI screening regimes are only now starting to emerge.

Reaching political consensus on what constitutes economic coercion is more realistic – albeit challenging – than a shared G7 anti-coercion instrument

The US is reportedly ready to introduce an outbound FDI screening mechanism and the European Commission is considering its own version. As these measures are still being finalized, the G7 is a platform for information-sharing and improved coordination but joint action and shared instruments are likely to remain elusive.

4. Better align existing platforms

G7 members engage in various constellations in numerous forums dealing with economic security issues. The Trade and Technology Council is a platform for the US and EU to coordinate approaches on secure supply chains. Supply chain resilience is also a main pillar of the Indo-Pacific Economic Framework for Prosperity (IPEF) between the US and 13 regional partners such as Japan and non-G7 members Australia and South Korea.

Under US leadership G7 members and a group of like-minded partners established the Mineral Security Partnership in 2022 to bolster critical mineral supply chains, and the European Commission wants to create a Critical Raw Materials Club for like-minded countries.

Five priorities for G7 to strengthen economic security 2nd part

As a key forum for international economic cooperation, the G7 should seek to promote greater coherence and avoid duplications across multiple economic security platforms. This can be achieved by G7 leaders building political will and emphasizing that efforts to strengthen economic security among members of the group is complementary to existing initiatives with like-minded partners.

5. Engage with the Global South

Japan’s decision to invite Australia and South Korea to participate in this year’s G7 leaders’ summit is a welcome step to better link the various economic security discussions and key players. But to truly advance a cooperative economic security agenda under Japan’s presidency, G7 members must look beyond like-minded developed countries to the Global South.

Efforts to build resilient supply chains for critical minerals requires engagement with countries which are major producers such as South Africa or Chile. The US and EU are taking steps in this regard but a more fully integrated approach spearheaded by G7 members must better link up different efforts – such as mobilizing funding for infrastructure investments and advancing trade agreements – to allow low- and middle-income countries to move up the value chain. Economic security ultimately goes beyond the circle of G7 partners.

This article is part of the Chatham House Global Trade Policy Forum which promotes research and policy recommendations on the future of global trade.