G7 flags China's overcapacity risk

G7 finance ministers used their May 18-19 meeting in Paris to tie three issues into one economic agenda: trade imbalances, support for countries hit by external shocks, and the future of the global minimum tax. Their communiqué did not name China in the text released by the Council of the European Union, but ministers said the current pattern of imbalances was unsustainable and linked their response to supply-chain resilience, economic security and multilateral coordination. The Paris meeting brought together the G7 finance ministers and central bank governors with the heads of the IMF, World Bank Group, OECD, Financial Stability Board, International Energy Agency, Asian Development Bank and African Development Bank. Brazil, India, Kenya and South Korea also joined consultations, according to the official communiqué. (consilium.europa.eu) ### Why did China sit at the center of a communiqué that did not name it? Reuters reported on May 19 that U.S. Treasury Secretary Scott Bessent argued for more protections against a flood of cheap Chinese imports as ministers agreed action was needed on trade imbalances in a fragmented global economy. The official communiqué said the current situation was unsustainable and called for stronger resilience through supply-chain diversification and secure trade flows. (consilium.europa.eu) A March 30 memo prepared for France’s G7 presidency by economists including Gita Gopinath, Hélène Rey and Axel Weber said excessive global imbalances heighten the risk of protectionism and crisis. That memo said rebalancing growth was in the collective interest of China, the European Union and the United States, and said China’s growth could be rebalanced by increasing “investment in people.” (usnews.com) ### What did the ministers say about poorer countries facing import and financing shocks? The May 19 communiqué said uncertainty tied to the Middle East conflict had raised risks to growth and inflation through pressure on energy, food and fertilizer supply chains, with the heaviest effects falling on vulnerable countries. The G7 said it welcomed an IMF, World Bank and IEA coordination group and called on those institutions, with the Financial Stability Board, to monitor the situation and develop shared assessments of global impacts. (elysee.fr) The statement stopped short of announcing a new debt-relief facility. But the institutions named in the communiqué — the IMF, World Bank Group, Asian Development Bank and African Development Bank — were already in the room in Paris, giving ministers a channel to push coordinated responses for import-dependent economies facing higher external financing and commodity costs. That is an inference from the participant list and the language of the communiqué. (mof.go.jp) ### What is the “side-by-side package” on the global minimum tax? The G7 said it welcomed the OECD/G20 Inclusive Framework’s Global Minimum Tax Side-by-Side Package and called its implementation important for “certainty and stability,” growth, a level playing field, tax sovereignty and protection against base erosion and profit shifting. The tax language in the communiqué also said ministers were continuing a dialogue on how to address challenges posed by the digital economy to the international tax system. (consilium.europa.eu) The package itself was approved by members of the OECD/G20 Inclusive Framework on Jan. 5, 2026. Ireland’s finance department said at the time that the arrangement was designed to allow coexistence with the U.S. tax system while preserving the original objectives of Pillar Two and included a review in 2029. ### Why does that tax language matter now? The June 28, 2025 G7 tax statement, later reflected in the January 2026 OECD package, was crafted after the United States raised concerns about how Pillar Two rules would apply to U.S.-parented groups. (regfollower.com) The side-by-side approach was intended to preserve cooperation while accommodating those concerns. The May 2026 communiqué kept that framework in place rather than reopening the dispute in Paris. (gov.ie) Ministers said they expected the OECD to produce a report by the end of 2026 identifying a shared understanding of digital-economy tax challenges and possible ways to address them. ### What comes next after Paris? The next major political test is the G7 leaders’ summit in Évian from June 15 to 17 under France’s presidency. (home.treasury.gov) On tax, the next formal deliverable is the OECD report due by the end of 2026, while the side-by-side system itself is scheduled for a stocktake in 2029 under the January OECD package. (globalbankingandfinance.com) (regfollower.com)