What next for G7? | Number Theory

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In current dollar terms, the G7 countries’ share in global GDP in 2025 is expected to be about 45%. This number used to be more than 60% until two decades ago and was more than two-thirds for a decade beginning in the mid-1980s. A break-up of GDP shares by US and non-US members of the G7 and the US shows that the group’s loss in global GDP share is primarily a reflection of the loss of economic prowess of the

Representational image. (AFP)

What's next for G7

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  The G7 is way past its economic prime

  In current dollar terms, the G7 countries’ share in global GDP in 2025 is expected to be about 45%. This number used to be more than 60% until two decades ago and was more than two-thirds for a decade beginning in the mid-1980s. A break-up of GDP shares by US and non-US members of the G7 and the US shows that the group’s loss in global GDP share is primarily a reflection of the loss of economic prowess of the non-US members. In fact, the GDP gap between US and non-US members of the G7 has been rising consistently in the recent past and is expected to maintain the trend.
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  China has caught up with the non-US G7 members in terms of GDP and all of it in terms of manufacturing output

  IMF data shows that global GDP share of non-US G7 countries started declining at a sharp pace from 2000 onwards. This is almost the same time when China started increasing its GDP share in the world after it was granted accession in the World Trade Organisation (WTO). While the US has managed to arrest its global GDP share decline since the 2010s, and China’s rising GDP share has flattened as well these numbers are unlikely to provide any relief to the G7 at large irrespective of the fact whether it’s the US or its non-US members. This is because China’s growth slowdown has not prevented its rising manufacturing prowess and it has already overtaken the manufacturing value added of all of G7 in terms of global manufacturing output. As China makes advances in more and more cutting-edge manufacturing activities, industrial activity in the G7 and with it both employment and external balance is likely to come under more pressure. This is causing both political and economic discomfort in the group, almost all of which have seen a rise in populist anti-globalisation politics.
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  G7’s bigger problem is the rift within

  The G7 could have lived with its problems outside the block had it been united inside. Donald Trump’s re-election as the US president has delivered a huge shock to the intra-block unity because of two reasons. One, unlike Trump’s first term, his trade war is now targeting not just China but every trade partner of the US and G7 members are also in the firing line. All G7 members have to face Trump’s baseline tariff rate of 10%. However, since the US has levied additional tariffs on steel, auto and aluminium, the effective tariff rate could be even higher. In the case of Japan for instance, it also faces an additional effective tariff rate of 5.24% on top of the baseline, according to data from Atlantic Council, a US-based think tank. Meanwhile, Germany has to face an additional tariff of 3.47% on top of the 10% baseline. Given the fact that G7 countries have significant export shares to the US, this is a major economic problem for them. The US accounted for nearly 14% of G7 exports in 2024, according to the Trade Map database.
• G7 also need to grapple with a faltering US security blanket

  The second problem in the G7 is for its European members who are worried about the US’s attitude towards the ongoing Russia-Ukraine war in Europe where Trump is unwilling to invest more military resources even as Europe has self-inflicted major economic pain by foregoing cheap Russian energy imports. As almost all advanced countries grapple with slow economic growth and high levels of national debt, raising military spending to substitute US’s military withdrawal is becoming a bigger cause for economic and political pain in these countries. While some G7 members such as Canada have seen an anti-Trump political consolidation in this milieu, its European members are grappling with a right-wing tilt in their political environment. Will the G7 summit try and put up a brave front of unity with the US or will it erupt over the concerns and friction described above? If it’s the latter, it could well be among the most important meetings of what was once considered to be the most powerful economic grouping in the world.