(Bloomberg) --

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. 

“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.”

--With assistance from Alessandra Migliaccio, William Horobin, Kamil Kowalcze, Toru Fujioka, Viktoria Dendrinou and Tom Rees.

(Updates with US tariffs in seventh paragraph)

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