The envisaged creation of a "mutually beneficial" partnership with developing nations for resilient supply chains is testimony to how the Group of Seven rich nations that have dominated international trade and finance is transforming itself to cope with what some experts call the "post-globalization" era.
Economic security is among the major G-7 agenda items this year under the presidency of Japan. Behind it lies a sense of alarm about China's tighter grip on critical components that has threatened the national security of other major powers.
With less than a week to go until a summit in Hiroshima where Prime Minister Fumio Kishida's middleman skills will be put to the test, the G-7 finance chiefs concluded their talks on Saturday with an agreement on the launch of the supply chain partnership by the end of this year.
While the G-7 members are united in punishing Russia for its unprovoked war on Ukraine, the group is grappling with the conundrum of not being too harsh nor too easy on Asian powerhouse China.
"The role of the G-7 has increased again," said Martin Schulz, chief economist at Fujitsu. "The current technology confrontation, especially between the United States and China, and the Russian attack on the post-world war order require cooperation and a common position among the middle powers" in the group.
Even within the G-7, the United States is more aggressive about countering what Treasury Secretary Janet Yellen described as "economic coercion," while Japan is seeking to take a balanced approach to China, an assertive neighbor but a key trading partner.
The G-7 plans to enable low- and middle-income countries to play bigger roles in the supply chains of critical components necessary for decarbonization, such as electric vehicle batteries, solar panels and rare earth materials.
The group's members hope that developing nations will benefit from sustainable growth by fostering their own domestic industries through investment and financial aid, while the global push for carbon neutrality will gather momentum backed by stable supplies of components for clean energy.
"Throughout the pandemic, we have witnessed the adverse effects of supply chains excessively concentrated in one place," Japanese Finance Minister Shunichi Suzuki told a press conference after the G-7 meeting.
While Japanese officials dismiss the idea that the supply chain partnership initiative is directly linked to China, experts say any diversification away from the world's second-largest economy, or "de-risking," is easier said than done.
"In a globalized world, countries stayed out of markets in pursuit of free trade and deregulation. We are in a post-globalized era when countries intervene for political and national security reasons," said Kazuto Suzuki, a professor of international political economy at the University of Tokyo.
"Both China and the United States are offensive in terms of using economic influence to advance their national security interests. But Japan is defensive. As G-7 chair, Japan needs to make sure the group keeps an eye on China while preventing the United States from going too far," Suzuki said.
The United States is curbing semiconductor exports to China, while reportedly considering limiting investments in the Asian nation by U.S. firms.
As she joined her G-7 peers for discussions, Yellen talked about the need for "friendshoring," adding that supply chain diversification efforts can open up trade and investment opportunities for developing nations.
A joint statement after the three-day meeting of the finance ministers and central bank governors made no specific mention of China but underscored the challenges the Asian powerhouse poses to the G-7 -- and developing nations for that matter.
Japan also invited key players with ties to China -- Brazil, India, Singapore and South Korea -- to the finance chiefs' meeting to discuss debt vulnerabilities experienced by developing nations and ways to make supply chains more robust.
"The restructuring of supply chains should come with extra benefits at a time when the economic power of the G-7 is declining and that of China is rising," said Toru Nishihama, chief economist at Dai-ichi Life Research Institute.
"Gone are the days when smaller nations would simply jump at an offer (from the big ones)," he added.
When the G-7 leaders meet from Friday, they will take up a whole range of global challenges, from Russia's aggression and food security to nuclear disarmament. Economic security will also be on the agenda.
"G-7 cooperation won't suffice," said one government official. "We need to send out a constructive message. That's why we need the Global South."
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