The G7 meeting of world leaders hosted by the UK in Cornwall will have a very different feel than recent summits. The 2020 summit was cancelled because of COVID, but Donald Trump’s “America first” agenda caused much acrimony at previous outings. At Biarritz, France in 2019 and La Malbaie, Canada in 2018, there were high-profile rows over issues like trade and the possibility of readmitting the Russians.
With President Joe Biden now setting out to revive American multilateralism as a way of reasserting his nation’s hegemony, the summit will be a test of whether the world can still work together in the shadow of the pandemic. It has an ambitious agenda aimed at tackling the world’s most pressing problems:
- Ending the pandemic by ensuring the global distribution of vaccines by 2022
- Accelerating action on climate change by governments and businesses
- Curbing the power of multinational companies with a new global tax regime.
So what will it all add up to? In the past, G7 summits have played an important role in reshaping the world economy towards greater globalisation. The inaugural meeting at Rambouillet, France, in 1975 was called during a deep recession caused by the oil crisis and turmoil in the currency markets, and led to coordinated action on exchange rates and ultimately to the creation of the euro. The 2005 G8 summit at Gleneagles, Scotland focused on African poverty and debt, and helped spur rich countries towards meeting the UN aid target of 0.7% of their GDP.
But as the economic power of the G7 has declined – from making up 80% of the world economy in 1975 to around 40% today – its role has shifted from the initial focus on global economic problems to broader geopolitical issues.
The most urgent task is to tackle the global pandemic and the resulting economic disruption. The unequal distribution of vaccines – with the rich countries accumulating far more than they could ever use – threatens not only global health but the world economic recovery.
To meet their 2022 target for ending the pandemic, the G7 countries need to begin distributing surplus vaccines immediately. But amid fears about the emergence of new variants, and with the G7 countries not having reached herd immunity at home, such an approach looks politically difficult. In the longer term, developing countries would prefer to produce the vaccines themselves, but their call to suspend patent protection to allow local production is also facing resistance.
The developing countries also lack the financial resources to revive their economies after the damage of the pandemic, which has sharply increased poverty. It appears that the G7 – given Britain’s attitude to aid – will offer little hope on this front. It will be left to the IMF and World Bank to enable poorer countries to borrow more by transferring to them the recent increase in international reserve assets known as special drawing rights.
There is even less agreement on how to revive the global economy. The rest of the G7 are unlikely to endorse the view of US treasury secretary Janet Yellen that “G7 economies have the fiscal space to speed up their recoveries to not only reach pre-COVID levels of GDP but also to support a return to pre-pandemic growth paths”. Despite the rapid recovery in the US, there are plans in Britain and other G7 countries to reduce government spending to stabilise public finances.
Climate change and big business
Climate change is an oft-proclaimed goal of G7 summits. But real progress will depend on decisions by fast-growing developing countries like China and India at the COP26 negotiations in Glasgow, Scotland in November. Ambitious targets by rich nations at the G7 may yet encourage others to move more quickly, however.
Cooperation with poorer developing countries might be strengthened if the US$100 billion (£71 billion) a year they were promised a decade ago for climate change mitigation – which will be promised again at this summit – is ever delivered. There are also plans for a green version of China’s Belt and Road development initiative, with a framework being set up for helping developing countries to transition to cutting carbon emissions.
The G7 summit may have more influence in changing corporate behaviour. One new initiative being endorsed aims to ensure investors and banks require the full disclosure of future climate change risks.
Even more bold is the US proposal to tackle corporate tax avoidance. Driven partly by the need to find new revenue sources after the pandemic, this proposes a global minimum corporation tax rate of 15%, and to force the “largest and most profitable” 100 multinationals to pay more tax on where their revenues are generated.
The main targets are the big US tech companies, such as Facebook, Google and Microsoft. They currently face a “digital services tax” in several European countries, including the UK and France. The US says a precondition for a tax deal is the removal of these taxes, and has already threatened trade sanctions if they don’t.
Given big companies’ history of tax avoidance, it is unclear how much such a tax will yield, and there will be prolonged haggling over the details. For the tech companies, paying a bit more tax would be preferable to the threat of antitrust action.
On the other hand, notably absent from the summit are concrete measures to boost global free trade, a mantra in many previous summits that remains important to the UK. This reflects a major US shift, where trade is now a sensitive political issue and tariffs remain on many Chinese imports. Attempts at global trade deals are off the agenda.
Overall, despite the soaring rhetoric, this summit will show the limits as well as the possibilities of coordinated action on urgent global economic problems. Compared to the 2008 financial crisis, when the G20 agreed a US$1 trillion rescue package, the results are likely to be modest. Whether the summit will be the harbinger of a new spirit of cooperation in a world of ideological polarisation and increased global competition is still an open question.