G7 Finance Ministers Close Ranks as Tensions with Russia and China Fester

Top finance officials from the world’s advanced economies moved closer to an agreement on Saturday over how to use Russia’s frozen central bank assets to aid Ukraine and pledged to unite against China’s dumping of cheap exports into their markets, aiming to marshal their economic might to tackle twin crises weighing on the global economy.

The embrace of more ambitious sanctions and protectionism came as finance ministers from the Group of 7 nations gathered for three days of meetings in Stresa, Italy. The proposals under consideration could deepen the divide between the alliance of wealthy western economies and Russia, China and their allies, worsening a global fragmentation that has worried economists.

Efforts by the G7 to influence the two powerful adversaries have had limited success in recent years but rich countries are making renewed push to test the limits of their combined economic power.

In a joint statement, or communique, that was set to be released on Saturday, policymakers said they would stay united on both fronts as geopolitical crises and trade tensions have emerged as the biggest threats to the global economy.

“We are making progress in our discussions on potential avenues to bring forward the extraordinary profits stemming from immobilized Russian sovereign assets to the benefit of Ukraine,” the statement, which was reviewed by The New York Times, said.

Regarding China, the finance ministers expressed concern about its “comprehensive use of nonmarket policies and practices that undermines our workers, industries, and economic resilience.” They agreed to monitor the negative effects of China’s overcapacity and “consider taking steps to ensure a level playing field.”

Growing concern over how to handle Russia and China dominated the three days of meetings on the banks of Lake Maggiore. The U.S. has been pushing for a harder approach to dealing with Russia’s assets and China’s exports while European countries have been treading more cautiously as they navigate their internal divisions.

Economic leaders spent much of their time grappling with the details of how they would proceed with unlocking the value of $300 billion in frozen Russian central bank assets to provide a longer-term stream of aid to Ukraine beginning next year.

“The key point is to ensure the right and strong and longstanding financing for the Ukrainian government,” Bruno Le Maire, the French finance minister, said on the sidelines of the meetings on Friday. “They need out support and they can rely on the united support of all G7 countries.”

By Saturday, there was growing momentum behind a proposal from the U.S. to use the windfall profits that are being earned from those assets to create a loan for Ukraine that could be worth up to $50 billion and be backed by some G7 countries.

“It really is the main option that is currently under consideration,” Treasury Secretary Janet L. Yellen said on Saturday following the meeting. “There does seem to be broad-based support for the general notion that that’s a productive way forward.”

But outstanding questions remained, including how countries would share the burden of risk associated with the loan if interest rates fall, which would erode the profits generated by the assets and what would happen to the loan when the war eventually ends. Another complicating factor in using the assets to back a long-term loan is that the European Union sanctions authorizing the immobilization of most of those Russian assets must be regularly renewed.

The finance ministers will be racing over the next three weeks to work through the details of their options. They anticipate that leaders of the G7 countries will decide how to proceed when they convene in Italy next month.

Urgency to reach an agreement has intensified as international weariness over the war has made it more difficult for the U.S. and Europe to continue delivering aid packages to Ukraine. Looming elections around the world, and in the U.S. in particular, have added to pressure to provide Ukraine with a stream of future funding.

“It would be nice to get this mechanism locked down, so that whatever the outcome of the U.S. election, you have $50 billion to play with,” said Charles Lichfield, a senior fellow at the Atlantic Council.

Although Russia dominated the talks, fears about the threat of China’s excess industrial capacity loomed large. Policymakers worry that a flood of heavily subsidized Chinese green energy technology products will cripple the clean energy sectors in the U.S. and Europe, leading to lost jobs and reliance on China for solar panels, batteries, electric vehicles and other products.

President Biden last week increased tariffs on some Chinese imports, including levying a 100 percent tax on electric vehicles, and left in place taxes on more than $300 billion worth of Chinese goods that President Donald J. Trump had imposed. This week, Ms. Yellen called on Europe and the G7 to more forcefully confront China over its trade practices.

“We need to stand together and send a unified message to China so they understand it’s not just one country that feels this way, but that they face a wall of opposition to the strategy that they’re pursuing,” Ms. Yellen said at a news conference at the opening of the meetings.

European countries are pursuing their own investigations into China’s trade practices and are considering more tariffs. However, they are taking different approaches and some nations, such as Germany, worry that a trade fight with China would be damaging to their own economies, which depend heavily on exports to the Chinese market. Germany’s finance minister, Christian Lindner, warned that trade wars are “all about losing.”

There were indications this week that both China and Russia are preparing their responses to actions by the G7.

The China Chamber of Commerce to the E.U. said on Tuesday that Beijing is considering a temporary tariff increase on car imports following the new U.S. tariffs and the prospect of new levies in Europe.

“This potential action carries implications for European and U.S. automakers,” the business group wrote.

At the same time, Russia is also mobilizing its response to western plans to use its assets to help sustain Ukraine. A spokeswoman for Russia’s foreign ministry described the idea of using the profits from the assets as an attempt to legitimize theft at the state level and said that the E.U. would feel the full measure of Russian retaliation.

President Vladimir V. Putin also signed a decree on Thursday indicating that Moscow would move to compensate itself for any losses that it incurs from the freeze on its sovereign assets by seizing U.S. property. Although Russia has little access to U.S. state assets, it could pursue the property of private investors that still have property in Russia or funds in Russian accounts.

Ms. Yellen dismissed Russia’s threats on Saturday, noting that it has already been warning that it would seize U.S. property.

“That’s not going to deter us from going ahead and taking action in support of Ukraine,” she said.

However, officials in Europe, where most of Russia’s assets are held, remain mindful of the potential for repercussions. Paschal Donohoe, president of the Eurogroup, a club of European finance ministers, said that the prospect of Russian retaliation has been a frequent subject of discussions.

“There is of course always the possibility that Russia may initiate additional measures in the future, Mr. Donohoe said, explaining that he is confident that the western allies have the authority to take the actions it is considering. “Any action we take with regard to any sanction or any additional economic measures will respect international law.”

It is uncertain if the policies that the finance ministers are considering will succeed at encouraging Russia or China to change course. Despite internal differences they appear to agree that a united front is their best hope.

“The G7’s renewal of strong unity is being forged amid the challenges posed by Russia’s brutal aggression in Ukraine and China’s growing authoritarianism and economic woes,” said Mark Sobel, a former longtime Treasury Department official who is now the U.S. chairman of the Official Monetary and Financial Institutions Forum.