This weekend, the G-7 Summit will take place in Hiroshima, Japan. Given that city’s economic importance, its selection as the host city was symbolic. Regardless, you are forgiven if you missed the news about the conference. A lot of people did.
Not so long ago, a G-7 Summit was a big deal.
After all, it was a meeting of the heads of the world’s most sophisticated economies. They would discuss meaty issues and determine global policy. At least, that is what they were supposed to do. Regardless, these summits were a policy wonk’s dream come true, until they weren’t.
Here are the numbers:
- In 1980, global Gross Domestic Product (GDP) totaled $11.337 trillion (USD).
- The G-7 countries (USA, Japan, Germany, UK, France, Italy and Canada), represented $6.443 trillion of the total or 56.8%. Obviously, their combined populations were a fraction of the global total, and still are. Still, when you control the majority of the world’s output, it makes it all that much more relative to set the rules. Doesn’t it?
- By 2023, global GDP had mushroomed to $105.569 trillion.
- While still important, the G-7 comprised only 43.5% of the world’s output.
- Of the 7, only the US and Canada maintained their relative economic importance, or close enough thereto. The remaining 5 countries all saw their comparative importance decrease in excess of 25%. For instance, in 1980, Japan accounted for 9.7% of global GDP. In 2023, the number is 4.2%, for a decrease of 56.9%.
Not surprisingly, the biggest gainer in global importance has been China, which obviously isn’t a G-7. Further, India has been growing rapidly, and now accounts for a greater share of global output than either France, the UK, Italy or Canada. Further, countries like South Korea, Indonesia and even Turkey have made great leaps over the last 50 years.
In 1980, those 4 countries (China, India, South Korea, and Indonesia) had a combined GDP of $550.2 billion. This was roughly 4.9% of total output. In 2023, current estimates are these same 4 will generate $26.224 trillion in economic activity, or 24.8% of the total.
This begs the question “how can 7 countries which contribute a decreasing percent of total global GDP, and less than the majority, pretend to set policy or guidelines for the rest of the world?”
Let’s think about it. Over the next decade, which country will be more economically important, China or Japan? South Korea or Italy? Indonesia or Canada? India or the UK?
After that, who or where will it be? At least in absolute terms? If economic and population growth rate estimates hold true, I sure hope you like naan, samosas, butter chicken, vindaloo, saag and dahl. Now, if only the sub-continent can get out of its own way.
Until such time, the G-7 has set its sights on the PRC.
Consider this, according to yesterday’s Wall Street Journal, one of the bigger topics for discussion in Hiroshima will be how to exclude China from a global semi-conductor alliance. That, at least, is what the always important pre-meetings were mostly about. Further, after years of promoting open, global trade, G-7 members are finally admitting that perhaps, that isn’t always such a good idea.
The article quotes a Japanese expert as saying:
“When economies get divided and split up into blocs, naturally something gets lost,” said Tadahiro Kuroda, a semiconductor technology specialist at the University of Tokyo. “But on the issue of semiconductors you can’t talk about just economics because they’re a strategic resource.”
Should I ask for an amen or a duh to that last sentence? After all, Kuroda is basically saying you shouldn’t give your best technologies to your enemies.
What else will be on the docket? Undoubtedly, side conversations will be about the US debt ceiling (see my thoughts on that in last week’s post, here) and global monetary policy. However, make no bones about it, this summit is largely about China, at least for the Americans and Japanese.
Consider this from Time Magazine:
“While the war in Ukraine will take center stage, the G7 will also be a venue for the member countries to unify against growing Chinese influence in the region, and to deter a possible Chinese invasion of Taiwan.
Bloomberg reported that the G7 finance ministers who met in Niigata on Thursday invited representative counterparts from poorer and emerging economies to attend meetings in order to try to improve their economic ties and counter China’s growing influence in the Global South. Japanese and American officials have also said they want to use the G7 to push for greater cooperation against “economic coercion” by China.”
As for any discussion on the war in Ukraine, it should be relatively short and sweet. The U.S. should direct the following to the European countries in the G-7: “There is an old saying in our country, and probably an equivalent in yours. Actions speak louder than words. Put another way, put up or shut up. If what is happening in Ukraine is important to you, open up your wallets and deplete your stockpiles. Words won’t push back the Russians.”
The following two links could raise the blood pressure of many Americans.
https://www.statista.com/chart/27278/military-aid-to-ukraine-by-country/
In the end, the leaders of the G-7 are meeting in Hiroshima as you read this, or have just met on Day 1. While still an important global body, it isn’t quite as meaningful as it once was largely due to China’s ascendency. As such, instead of discussing free trade and global cooperation, as was previously the norm, it seems this summit will have much to do with containing the Chinese, as well as an element of protectionism.
However, that really shouldn’t come as much of a shock, should it? After all, the Chinese haven’t been, and likely never will be, part of the G-7. As such, why should they play by its rules?
Think about it. According to most estimates, China’s economy is greater than the combined total of the G-7 (minus the U.S.), and growing much faster. Not surprisingly, it thinks it should be setting the rules as well.
Yep, that about sums up a meeting currently going on in Hiroshima. That is in case you were wondering about it.
John Norris
Chief Economist
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