The Structural Transformation of Global Economic Power: G7 at a Crossroads
The verdant peaks of Kananaskis provided a deceptively serene backdrop for what may be remembered as a watershed moment in the evolution of global economic governance. The 2025 G7 Leaders’ Summit, convened from June 15–17 under Prime Minister Mark Carney’s stewardship, unfolded not merely as another diplomatic gathering but as a stark exposition of the structural contradictions that now define Western efforts to maintain economic leadership in an increasingly multipolar world. The summit’s outcomes—or lack thereof—illuminate the widening gap between the G7’s diminished global economic footprint and its continuing aspirations to shape the international order.
The numbers tell an unforgiving story of decline. The G7’s combined share of global GDP has contracted from a commanding 66 percent in 1990 to around 44–45 percent in 2025 (in nominal terms). When measured by purchasing power parity, the bloc now accounts for less than 30 percent of global output and only about 10 percent of the world’s population. This statistical erosion reflects not merely relative decline but a fundamental shift in the geography of economic power—one that traditional multilateral institutions have failed to acknowledge, let alone address. The paradox is striking: even as the G7’s global economic weight diminishes, their interdependence with China has never been greater, as evidenced by deepening trade and supply chain linkages.
This transformation exposes the central contradiction of contemporary Western economic diplomacy—the attempt to contain and compete with the very economic partner upon whom continued prosperity depends. The 2025 summit thus becomes a case study in how institutional momentum can persist long after the structural foundations that justified an institution’s existence have eroded.
The Illusion of Trade Policy Coherence
The summit’s handling of trade disputes revealed the extent to which G7 unity has become more performative than substantive. Finance ministers put a positive spin on proceedings by acknowledging concerns that “trade and economic policy uncertainty was high and weighing on global growth,” while stressing the need to address “unsustainable global macro imbalances”—language that glosses over the deep divisions that now define Western trade policy.
The reality beneath this diplomatic surface is far more fractured. Japan, Germany, France, and Italy face the looming threat of a potential doubling of reciprocal U.S. tariffs to 20 percent or more in early July. The UK, by contrast, secured a partial deal with the United States that reduces tariffs on key British exports, including autos and aerospace components, though steel remains unresolved. Meanwhile, host Canada continues to grapple with Trump’s separate 25 percent duty on various Canadian goods.
These are not merely technical trade adjustments; they reflect profound challenges to the postwar economic architecture that the G7 claims to defend. The deeper question is whether these tensions are resolvable policy disputes or manifestations of a deeper philosophical divergence. President Trump’s early exit from the summit and his self-identification as “a tariff person” suggest that trade is now viewed not as a tool of integration but as an instrument of strategic leverage.
Tariff escalation may force a radical reconfiguration of global value chains, leading to a less efficient and more fragmented trading system. Falling freight indices already hint at weakening industrial activity, especially in supply chain-dependent sectors. The cost of this fragmentation extends well beyond the immediate players—introducing systemic inefficiencies that weigh on global growth.
The China Question: Containment or Accommodation?
No issue better illustrates the G7’s strategic incoherence than its approach to China. What emerges is a "China paradox"—the impossibility of decoupling from a nation whose economic integration is essential to G7 prosperity. Summit discussions alluded to “threats from non-market economic policies of countries including China,” yet this rhetoric failed to acknowledge the resilience and competitiveness of China’s developmental model.
As the top global manufacturer, a leader in exports, and an increasingly powerful innovator in high-tech sectors, China poses a strategic challenge not easily addressed through economic distancing. The 2025 Global Soft Power Index shows the United States still ranked first but stagnating, while China has climbed to second place for the first time—indicating a broader contest for influence that transcends GDP.
The strategic failure lies in the G7’s inability to craft a realistic framework for competitive interdependence. Instead of embracing the reality that cooperation with China may be both inevitable and potentially advantageous, leaders cling to policies premised on the fantasy of disentanglement. This mismatch between aspiration and reality undermines credibility and effectiveness.
Compounding this is the rise of alternative institutions. With Russia and ten others, BRICS has expanded to include Egypt, Ethiopia, Saudi Arabia, Iran, the UAE (2024), and Indonesia (2025), offering an explicitly non-Western model of economic cooperation. This growing bloc represents not just a geopolitical shift, but a challenge to the legitimacy and authority of Western-led institutions.
The Institutional Crisis of Multilateralism
The summit’s failure to produce a joint communiqué is more than a diplomatic embarrassment; it is evidence of institutional paralysis. Historically, the G7 functioned by forging consensus among aligned economies. That mechanism appears broken.
The transformation of the G8 into the G7 following Russia’s exclusion marked a turning point. It symbolized the shift from a purely economic forum to a geopolitical alliance—one that now lacks both the economic influence of the past and the strategic unity of a credible security bloc.
The core question is whether legacy multilateral institutions can adapt to manage the rivalry of major powers—or whether that very competition renders multilateralism obsolete. The G7 experience suggests that institutions built for an age of Western dominance may not be structurally capable of navigating a multipolar world. Efforts to "paper over differences" with rhetorical unity may actually accelerate decline by postponing the deep reforms required for survival.
Economic Statecraft and the New Mercantilism
The summit’s focus on critical minerals, AI governance, and supply chain security reflects a broader pivot to economic statecraft—where strategic autonomy increasingly trumps market efficiency. This turn marks a rupture from liberal economic orthodoxy, but without a fully developed alternative framework to replace it.
G7 countries now attract over 80 percent of global private AI investment (2024), yet remain dependent on fragile supply chains and critical resources, many of which are dominated by China. The drive to “fortify” supply lines while leading in innovation reveals a fundamental contradiction: the goals of technological leadership and economic sovereignty are often in tension.
This dilemma poses serious strategic design challenges. In democratic societies, the dynamic private sector drives innovation, but is not easily harnessed for national security goals. Bridging this divide—between entrepreneurial freedom and state-led coordination—will require a new paradigm of public-private collaboration. The G7’s struggle to develop coherent strategies in AI, energy transition, and industrial policy underscores the magnitude of this governance gap.
The Democracy vs. Efficiency Dilemma
A less visible but crucial dimension of the G7’s malaise lies in the contrast between democratic decision-making and economic execution. The procedural complexity of democratic governance—public scrutiny, parliamentary approval, electoral churn—often inhibits the kind of long-horizon planning necessary for global competitiveness.
China, by contrast, has shown a capacity to execute integrated industrial strategies across years and sectors. The G7’s internal fragmentation, policy inconsistency, and short electoral timelines create an enduring structural disadvantage.
This raises a fundamental strategic dilemma: can democratic systems remain competitive in a world of state-capitalist rivals? If the answer is no, the implications are existential—requiring not marginal reform, but a reimagining of how democracies organize their economic futures in a hyper-competitive era.
Climate Economics as Strategic Vulnerability
Canada’s prioritization of climate resilience and renewable energy at the summit was both timely and perilous. Commitments to “tripling renewables, ending fossil fuel subsidies, and securing critical minerals” coincide with fiscal pressures from rising defense costs, debt burdens, and geopolitical contingencies.
The paradox is stark: the more aggressively the G7 decarbonizes, the more it becomes dependent on China’s dominance in solar panels, batteries, and mineral refining. This creates a “green dependency trap,” where climate ambition may undercut strategic autonomy.
Here lies a pivotal tension: can the G7 reconcile environmental necessity with geopolitical rivalry? Or must it choose between decarbonization and sovereignty?
Soft Power Erosion and Economic Fallout
The drop in Canadian travel to the United States—down 24 percent in March 2025 from the previous year—is emblematic of more than strained relations. It signals a weakening of the shared social and cultural fabric that once sustained transatlantic and intra-G7 cohesion.
Eroding soft power carries real economic costs. It affects migration flows, global investment decisions, and the informal networks that have historically amplified Western influence. A weakened American brand could destabilize the dollar’s status and imperil New York’s role as the global financial capital.
This deterioration is both cause and effect of broader decline. As Western societies fragment internally and lose global appeal, they also forfeit the intangible advantages that once supported their economic leadership.
The Summit as Symptom: Diagnosing Structural Decline
The 2025 Kananaskis Summit was not simply a failure of diplomacy—it was a mirror held up to systemic decline. The G7 continues to operate under assumptions—of cohesion, control, and centrality—that no longer reflect reality.
What is being preserved is no longer institutional strength, but the appearance of continuity. Prime Minister Carney’s role as summit chair was not to engineer a fleeting consensus, but to confront the deeper contradictions in the G7’s purpose and structure.
If the G7 is to remain relevant, it must evolve—not incrementally, but fundamentally. Yet even that evolution is fraught. Full dissolution would leave a dangerous vacuum, while shallow reform may prolong dysfunction.
Beyond Crisis Management: Toward Strategic Reorientation
The summit's heavy emphasis on reactive crisis management—from trade disputes to climate emergencies—underscores the G7's shift from strategy to triage. But strategy, by definition, requires confronting structural decline with intellectual clarity and political courage.
New conceptual frameworks are needed. Traditional metrics—GDP, innovation rankings, market share—may no longer capture what matters most. Instead, resilience, adaptability, and sustainability may become the defining indicators of success.
The G7 must move from nostalgia for leadership to preparation for coexistence in a pluralist global economy. The choice is between clinging to outdated privileges or crafting new rules for cooperation amid competitive interdependence.
Conclusion: A Summit in the Shadow of the Peaks
The 2025 Kananaskis Summit should be remembered not for what it achieved, but for what it revealed: a moment of clarity atop the peaks, where the G7 stared into the valley of its structural disorientation. The mountain setting—with its austere beauty and unforgiving terrain—served as a fitting metaphor for the harsh strategic choices facing the world’s leading democracies.
Whether they navigate this descent with vision or stumble into irrelevance may well define the economic and political contours of the 21st century.
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