G7 leaders have agreed to President Biden’s plan to counter China. The initiative to “build back a better world” has some merit, but is undermined by vague value pronouncements and a worrying drive toward a tax quasi-cartel.
The 47th summit of the G7 leaders took place from June 11 to 13. When the group first formed in the mid-70s, the United States, Japan, Germany, the United Kingdom, France, Italy and Canada were the seven largest economies in the world. While the rankings have changed since then, the group has survived as a body of leading economies among democracies. The European Union now also participates in the meetings.
Along with the British hosts, U.S. President Joe Biden – with his “America is back” motto – led preparations for the summit. The meeting offered him a platform to promote his agenda of building an alliance of democratic countries. His main foreign policy goal now seems to be containing China. Another goal close to his heart is the promotion of tax harmonization. All the other G7 leaders are very amenable to this idea, even though it will create a type of quasi-cartel.
Two evergreen issues – climate change and Covid-19 – also played prominent roles in the discussion, though there was little news or fruitful action taken on either front.
The leaders agreed on a global minimum tax for large corporations. Here it is worth reiterating a theme that GIS and others have touched on over recent weeks: The claim that the world’s internet giants do not pay taxes (which is incorrect) is only a pretext to introduce this tax regime, amounting to a cartel against healthy regulatory competition.
Many leaders see a minimum corporate tax as a good way to squeeze even more money from their economies.
Internet giants allegedly not paying taxes is no basis to introduce a minimum tax for all corporations. Yet, many leaders see it as a good way to squeeze even more money from their economies, regardless of the huge administrative costs and inefficiencies, as well as the potential economic damage. It is a chilling further step toward more taxes, to the detriment of citizens and businesses. It is a sad outcome of a meeting of leaders of the “free world”: their decisions will limit their citizens’ freedom through increasing regulations.
Answer to Belt and Road
The U.S. wants an alliance to contain China. The Chinese Belt and Road Initiative (BRI), also called the New Silk Road, is a multitrillion-dollar infrastructure project involving some 100 countries to ensure Beijing has access to markets and resources around the world, especially throughout the Eurasian continent and Africa. It was launched 2013 and the (not unjustified) worry is that the project serves China’s political interests.
The Europeans call China a “systemic rival,” while the U.S. has dubbed it a “strategic competitor.” With the BRI in mind, the G7 is proposing an infrastructure project implemented by democratic countries. In alignment with President Biden’s “Build Back Better World” plan for the U.S., his administration has proposed calling this $40 trillion initiative the Build Back Better World, or B3W.
The White House’s statement on the initiative reads as follows: “President Biden and G7 partners agreed to launch the bold new global infrastructure initiative Build Back Better World (B3W), a values-driven, high-standard, and transparent infrastructure partnership led by major democracies to help narrow the $40+ trillion infrastructure need in the developing world, which has been exacerbated by the Covid-19 pandemic.
Through B3W, the G7 and other like-minded partners [will] coordinate in mobilizing private-sector capital in four areas of focus – climate, health and health security, digital technology, and gender equity and equality – with catalytic investments from our respective development finance institutions. B3W will be global in scope, from Latin America and the Caribbean to Africa to the Indo-Pacific. Different G7 partners will have different geographic orientations, but the sum of the initiative will cover low- and middle-income countries across the world.”
The Biden administration has claimed that the project is not directed against China – a sort of “diplomatic truth” that belies its real intentions.
Building a better or worse world?
It is certainly good to hear that the West will become active to assure global development and to protect its interests. GIS has warned repeatedly over the years about the danger of losing influence over trade routes.
Countries need infrastructure, but they also need free trade. And when it comes to free trade, the G7 countries are no champions – but of course, neither is China. The plan has potential, but there are plenty of reasons for concern, especially in its implementation, focus and usefulness.
More than big words, B3W will require targeted plans and knowledge of local needs.
Improving health systems is a worthy goal, as is securing reliable and affordable electricity for the developing world – though the latter is not mentioned in the White House statement. Transportation (road, rail and ports) is key to development, but also not included in the program, and requires capital more than digital technology. More efficient primary education is another necessity that must not be ignored. Besides health and technology, the other areas of focus – “climate,” “gender equity” and “equality” – carry more vague connotations. Concentrating on these issues could be considered “neocolonialist” and undue intervention in some of the recipient countries.
Let us hope that the initiative moves in the right direction. More than big words, it will require targeted plans and knowledge of local needs, uninfluenced by predetermined ideas.
However, the real crux is that the people proposing this $40 trillion program are also creating a tax cartel to prop up their nearly bankrupt state finances. Where will they get the money to pay for this new program? The White House statement mentions “mobilizing” private initiatives, but creating a cartel to protect high-tax systems will hamstring the private sector. It will build a worse, not a better, world.
The silver lining in all this may be that European countries finally realize that they must put significant effort into protecting their geopolitical interests in the global competition. This will require precise economic, military and political initiatives, not just discussions in the talking shops at the G7, G20, the United Nations and in Brussels.