Below you will find the executive summary of this text. To read it in its entirety, please download the PDF version of DGAP/Aspen Institute Germany Analysis No. 4.
Executive Summary
The G7 is confronted with a rapidly changing geopolitical and geoeconomic environment. Russia’s large-scale invasion of Ukraine in 2022 marks a turning point in international relations and the global economy. In addition, rivalries between Western democracies and autocratic regimes, especially between the United States and China, are intensifying. In this geoeconomic environment, the role of the G7 – a club of economically powerful nations that also stands for democracy, rule of law, respect for human rights, and the free market – is once again growing in importance.
But how strong and sustainable is this new geoeconomic alignment of G7 countries? After laying the groundwork by defining geoeconomics – also in the context of the G7 – three case studies will analyze the successes and failure of the joint geoeconomic commitments and policies of the G7. The period of analysis ends in December 2023.
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Case Study 1: Russia |
Russia was officially admitted to the G7 in 1998. However, after the annexation of Crimea in 2014, the G7 suspended Russia’s membership “until Russia changes course.” (The meetings of the G7 from 1998 to 2013 that included Russia were known as the G8.) With the invasion of Ukraine in 2022, the G7 immediately reacted in a united and assertive way, imposing export controls and sanctions. However, G7 countries neither succeeded in destroying Russia’s war economy nor in changing Russia’s determination to continue with its military assault on Ukraine. In addition, the G7 are not big enough to truly prevent Russian oil sales to the Global South and other countries. Changes in strategy will likely not come through economic warfare (sanctions and export controls), but through military victories and the delivery of modern weapons and ammunition to Ukraine.
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Case Study 2: Iran |
Conflicts between the Islamic Republic of Iran and members of the international community have persisted for nearly five decades and involved disputes across a range of issues. Recent flash points include the Russian use of Iranian-designed Shaheed drones, Iran’s alleged support for the October 7, 2023, attacks on Israel, and Iran’s support for the Houthis’ attacks on Red Sea shipping. Since the withdrawal of the United States from the Iran nuclear agreement, formally known as the Joint Comprehensive Plan of Action (JCPOA), in 2018, the G7 has ceased operating effectively as a sanctions-coordinating body on Iran. Recent developments may, however, move the threat perceptions of European G7 members toward those of the United States, which would restore G7 unity.
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Case Study 3: China |
China has often been at odds with the United States and other liberal democracies. G7 members object to China’s authoritarian government and illiberal economic system as well as its human rights violations. This has been exacerbated by the presidency of Xi Jinping, which has stoked Chinese nationalism and used Chinese economic power for coercive and destabilizing purposes – which the G7 sees as a pattern of aggressive Chinese behavior. The G7 has served as a platform for focusing attention on these concerns. Human rights issues have been addressed – albeit to negligible effect – through visa bans and asset freezes coordinated among G7 members. The most significant geoeconomic actions against China, however, have been unilateral export bans and procurement restrictions led by the United States, with G7 buy-in as a follow-on effort.
Mixed Record for the G7 as Geoeconomic Actor
The G7 members frequently employ geoeconomic strategies, including economic instruments, to defend and advance national economic and security interests. Yet, taking the findings of the three case studies into account, the picture for the G7 as a geoeconomic actor is mixed. There are five primary reasons for this:
- The G7 has a limited formal institutional set up and limited tool kit. Monitoring compliance is limited, and there is no formal enforcement mechanism.
- G7 members have different capacities for deploying geoeconomic tools.
- While the G7 countries share many values, their economic dependencies, risk perceptions, and interests are not always aligned.
- Even when G7 members share the same objectives, they sometimes differ in their strategies and tactics (e.g., regarding Iran).
- The decreasing economic share of the G7 countries has and will continue to reduce the power of its geoeconomic instruments.
Recommendations
To improve their geoeconomic impact, the G7 countries need to align their interests and risk perceptions. At the same time, G7 members besides the United States should improve their ability to propose and enact geoeconomic measures. New and expanded G7 working groups should reflect the expansion of the G7’s agenda to include financial stabilization, sanctions coordination, investment programs, trade restrictions, technology, and defense. In addition, G7 members must build institutional capabilities to share the administrative and policymaking burdens of geoeconomic measures more equally. Furthermore, the G7 should bolster its partnerships with like-minded countries by inviting them to participate in issue-specific working groups, investment initiatives, and political declarations.
