G7 finance ministers urge action on economic imbalances, some point to China

By Maria Martinez, David Lawder and Leigh Thomas

PARIS, May 19 (Reuters) - G7 finance ministers agreed on Tuesday on the need for action to tackle trade imbalances in a fragmented global economy, saying the current situation was unsustainable with U.S. Treasury Secretary Scott Bessent arguing for more protections against a flood of cheap Chinese imports.???

The finance ministers and G7 central bank governors met in Paris for a second day to discuss the economic fallout from the Iran war and volatility on global bond markets but were light on concrete measures.

They agreed on the need to re-open the Strait of Hormuz and support Ukraine, but some splits between the United States and the others on key issues to do with Iran and Russia persisted.

Bessent told Reuters in an interview that he had warned European counterparts that they needed trade protections against a flood of Chinese exports that would damage their economies as China continues to build excess industrial capacity in the face of chronically weak domestic demand.?

"Unfortunately, I was right," he told Reuters in an interview after the meeting. "And the Chinese have hit the accelerator, so they're manufacturing more."

With poor domestic consumption sapping growth in China, "now more gets exported," he added.

Japanese Finance Minister Satsuki Katayama also put the blame on China for much of the imbalances, saying this was reflected in last week's U.S.-China leaders' summit.

"There is broad agreement among all countries that China, with various issues such as industrial policy problems and distortive, non-market behaviour, does not appear willing to correct these imbalances itself," Katayama said, adding there was pressure for G7 leaders, meeting in June in the French Alpine town of Evian-les-Bains, to agree on actions.

OVER-CONSUMPTION, UNDER-INVESTMENT

French Finance Minister Roland Lescure suggested a more balanced approach to tackling imbalances, a major theme of France's G7 presidency, suggesting that overconsumption in the United States and underinvestment in Europe also were contributing to imbalances along with Chinese overproduction.

This was fuelling trade friction and risked a turbulent unwinding in financial markets.

"We all share a common view. Those imbalances are not sustainable," Lescure told reporters after the meeting. He called for the International Monetary Fund to improve its monitoring and analysis, and pledged to continue discussions.????

He said the finance chiefs also discussed diversifying the supply of rare earths and critical minerals at the meeting.

The G7 ministers agreed that their domestic agendas needed to include plans to increase investments, improve productivity and curb policies that distort markets, Lescure said.

He cited large Chinese export surpluses as part of the issue, but discussions so far in the broader G20, of which China is a member, haven't yielded much progress.

G7 MINISTERS ADDRESS IRAN CONFLICT, PRESSURE ON RUSSIA

G7 ministers said in a statement it was "imperative" to ensure a return to free and safe transit through the Strait of Hormuz and ease strains on energy, food and fertiliser supply.

U.S. President Donald Trump said on Monday he had paused a planned attack against Iran, talking up the chances of reaching a nuclear deal.

Other G7 countries have expressed frustration that Washington and Israel launched strikes against Iran without considering the economic impact of the foreseeable closure of the strait, a vital waterway for energy markets, while Trump has castigated some allies like Britain and Germany for not fully supporting the operation.???

Bessent said European allies needed to better enforce financial sanctions on Iran, while Asian allies should tackle Iran's shadow fleet to prevent transfer of oil to non-sanctioned tankers.

UNITED ON UKRAINE SUPPORT, DIVIDED ON RUSSIA OIL WAIVER

The joint statement said the G7 countries were united in their condemnation of Russia and their unwavering support for Ukraine. However, a U.S. decision to again extend a sanctions waiver to allow purchases of Russian seaborne oil to aid "energy-vulnerable" countries for 30 more days was a source of tension in the group.

Lescure said it was for Bessent to justify the waiver extension, while European Economic Commissioner Valdis Dombrovskis said that G7 countries "are not always 100% aligned on everything, and this is unfortunately one of those topics."

On critical minerals and rare earths, G7 governments are trying to coordinate efforts to reduce reliance on China, which dominates supply chains vital for technologies such as electric vehicles, renewable energy and defence systems.

The ministers pledged to "deepen and expand our cooperation among G7 members and with like-minded partners" on critical minerals, while Bessent said the G7 was working on critical minerals inventory reserves, pricing and price-floor mechanisms to keep China from undercutting alternative supply efforts.

(Reporting by Alistair Smout, Leigh Thomas, David Lawder, Maria Martinez and Makiko Yamazaki; Additional reporting by Dominique Vidalon and Sudip Kar-Gupta; Editing by Susan Fenton, Alexandra Hudson, Nick Zieminski and Stephen Coates)