At the conclusion of the G7 leaders’ summit on May 20 in Hiroshima, Japan, a statement was released in which countries pledged to increase their own economic resilience using a strategy of “diversifying and deepening partnerships and de-risking, not de-coupling.”
Analysts have shown curiosity in the usage of the term “de-risking,” particularly as it was used once more to define the countries’ position towards China on economic issues later in the statement.
At a news conference following the summit, US President Joe Biden stated, “We’re not looking to detach from China. We want to diversify and reduce the danger in our connection with China. After what he called an event involving “this silly balloon that was carrying two goods cars worth of goods,” he predicted a warming of the relationship.
De-risking in this context refers to lessening reliance on China in the economic arena, as a source of raw materials, or as a market for completed goods.
The G7 nations declared in the statement that “neither do we wish to impede China’s economic advancement or development, nor are our policy measures intended to do so. A developing China that adheres to international norms would be of interest to everyone.
“We are not decoupling or turning inward,” they continued. At the same time, we understand that de-risking and diversification are necessary for economic resiliency. We shall take action to invest in the health of our own economy, both individually and collectively. We’ll cut back on unnecessary reliance in our vital supply network
Here, decoupling is talked about as a substitute for an economic boycott. For instance, in order to improve its trade balance with China, the United States increased taxes on steel and aluminium products coming from China in 2018. This was done under US President Donald Trump. This led to a tit-for-tat trade war in which China added duties on US goods worth hundreds of billions of dollars.
De-risking, according to the website of the US Department of State, is “the phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk.” It merely implies diverting business from regions deemed risky in terms of the potential returns.
For instance, the World Bank reported in 2016 that international financial institutions were progressively terminating or limiting business agreements with smaller local banks in several regions of the world to de-risk, as it is frequently believed that such banks would not be able to repay loans.
Decoupling and de-risking are two concepts that can be used to describe approaches to managing relationships with other nations. De-risking has been employed before.
The US national security advisor Jake Sullivan used the phrase in a significant policy address on April 27, according to the New York Times, saying, “We are for de-risking, not for decoupling. De-risking fundamentally entails preventing us from being the target of foreign pressure and establishing robust, efficient supply networks.
It was used by President Emmanuel Macron and Ursula von der Leyen, the head of the European Commission, the executive branch of the European Union, on their trip to China this year.
