China’s outsized role in world trade is alarming global finance chiefs, who are poised to forge a united front in Italy priming their nations to challenge “harmful practices.”

A draft communique formulated at the Group of Seven meeting in the lakeside resort of Stresa introduces much stronger common language than the club adopted just one year ago when it met in Niigata in Japan and last month in Washington.

“We will advance our cooperation to enhance global economic resilience and economic security and protect our economies from systemic shocks and vulnerabilities,” officials say in the document seen by Bloomberg. “To this end, we will work to make our supply chains more resilient, reliable, diversified and sustainable and to respond to harmful practices, while safeguarding critical and emerging technologies.”

That wording was absent in prior statements, whose contents only refer to a “free, fair and rule-based multilateral system.”

The change would risk an escalation just months before US elections that could return Donald Trump to the White House — along with his appetite for confrontation and his taste for trade tariffs.

At the same time, the US, China and the European Union are already preparing increasingly assertive trade measures.

On Friday, American officials announced that President Joe Biden will reimpose tariffs on hundreds of goods imported from China as part of a broader plan to increase duties in strategic sectors and protect the country’s manufacturing.

The G-7 communique can still change before it’s formally approved. Ministers will continue their meetings on Saturday before adopting a commonly formulated document.

Mounting Concerns

Multiple officials speaking around the gathering suggested mounting concerns that Chinese industrial might could be undermining their own economies.

“One of the discussions we had was about trade rules with China and the necessity to fix the question of industrial overcapacities,” French Finance Minister Bruno Le Maire said on Friday. “We need to have a common and strong response to that question.”

The draft communique also addressed the state of the world economy, noting that it “has shown greater resilience than expected against multiple shocks.”

The document shows ministers acknowledging that the consumer-price shock that has gripped their countries in the past couple of years may not be completely over.

“Labor markets remain relatively robust and inflation has continued to moderate, although core inflation is showing some persistence, notably in the service sector,” they said in the draft.

Ministers also touched upon the divergence currently seen across the group, where expansion is unevenly skewed toward the US, while other members are experiencing far less momentum.

Get AfriPrime Android Web View app....Click the link to Amazon app store to download https://rb.gy/3xek46

“Global economic growth is likely to remain below its historical average and heterogeneous across countries and regions,” the draft says. “The economic outlook remains subject to risks amid the threat of escalating geopolitical tensions and volatile energy prices.”

While fiscal matters didn’t feature prominently on the agenda of the G-7, the ministers do seem to be coalescing on the need to repair public finances in the medium term at a time when most member countries face mounting loads on debts that already exceed 100% of output, sometimes considerably so.

“Gradually rebuilding fiscal buffers is a key priority to strengthen fiscal sustainability and create more space to respond to new shocks, while continuing to protect the most vulnerable and making needed investment to promote sustainability and resilience, complemented by an ambitious structural reform agenda to enhance growth potential,” the draft says.

Ministers seem set on reaffirming their prior language on currencies, while also ensuring “sound and well-communicated macroeconomic and structural policies, while endeavoring to limit negative spillovers through clear communication.”

Get AfriPrime Android Web View app....Click the link to Amazon app store to download https://rb.gy/3xek46

France's Le Maire Raises Alarm on Chinese Exports at G-7

French Finance Minister Bruno Le Maire says the entire global economy is at risk from a glut of cheap Chinese exports, raising the alarm as Group of Seven countries try calibrate their responses. He also discussed funding for Ukraine during an exclusive interview with Bloomberg's Oliver Crook on the sidelines of the G-7 meeting of finance ministers and central bankers in Stresa, Italy.

Get AfriPrime Android Web View app....Click the link to Amazon app store to download https://rb.gy/3xek46

G7 reaffirms warning against excess currency volatility in nod to Japan

U.S. Dollar and Euro banknotes

Finance leaders of the Group of Seven (G7) advanced nations on Saturday reaffirmed their commitment to warn against excessively volatile currency moves, language Japan sees as a green light to intervene in the market to arrest rapid falls in the yen.

The agreement followed new verbal warnings from Japan's top currency diplomat Masato Kanda, who told reporters on Friday that Tokyo was ready to step into the market "any time" to counter speculative yen moves that hurt the economy.

"We reaffirm our May 2017 exchange rate commitments," the G7 ministers said in a statement on Saturday after their meeting in Stresa, Italy, in a nod to Japan's call on the group to reiterate its view on the need for currency market stability.

The G7 group has a long-standing agreement that excessive volatility and disorderly currency moves are undesirable, and that countries have authority to take action in the market when exchange rates become too volatile.

Tokyo has argued this agreement gives it freedom to intervene in the currency market to counter excessive yen moves.

"We're grateful the G7 reaffirmed its shared understanding on exchange rates. It's also reassuring for markets," Kanda told reporters on Saturday after the finance leaders' meeting.

The G7 language on exchange-rate commitment was unchanged from the group's previous statement issued on April 17, when the finance leaders met in Washington on the sidelines of the International Monetary Fund meetings.

Two weeks after the April G7 meeting, Japan is believed to have intervened in the currency market to prop up the yen to arrest what authorities described as excessive, speculative currency moves.

Get AfriPrime Android Web View app....Click the link to Amazon app store to download https://rb.gy/3xek46

While this kept the yen from falling below the psychologically important 160-to-the-dollar line, the Japanese currency has yet to stage a clear rebound. It stood at 156.98 to the dollar on Friday, not far from the more than three-week low of 157.19 touched on Thursday.

There is also uncertainty on whether the G7 countries will tolerate further forays by Japan into the exchange-rate market.

Speaking in Stresa, U.S. Treasury Secretary Janet Yellen said on Thursday that currency interventions should not be a "routine" tool to address imbalances and should be used only rarely and in a well-communicated way.

The finance leaders' communique of May 2017, which was reaffirmed on Saturday, said "excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability".

But it also called for exchange rates to be determined by markets, and that members "consult closely in regard to actions in foreign exchange markets."

Kanda, who oversees Japan's currency policy as vice finance minister for international affairs, said on Saturday he was in "extremely close contact" with his U.S. counterparts on a daily basis including on markets.

The yen has lost 11% against the dollar this year on expectations the U.S. Federal Reserve will be in no rush to cut interest rates, which would keep a wide divergence between U.S. rates and Japan's ultra-low rates.

Markets are focusing on whether Japan will intervene again to arrest a stubbornly weak yen, which has become a headache for policymakers as it hits consumption by inflating the cost of raw material imports.

Get AfriPrime Android Web View app....Click the link to Amazon app store to download https://rb.gy/3xek46