TELFS, Austria — As President Joe Biden sets off to meet with world leaders in Europe next week, his top domestic priority of inflation will remain high on the agenda amid fears of the global economy could tip into a recession as war rages on in Ukraine.
The G7 summit in the Bavarian Alps that begins Sunday will give Biden an opportunity to huddle with leaders of the wealthiest democracies on ways to ease rising prices while continuing to put pressure on Russia to end the war in Ukraine, including avenues to boost global energy production and a potential price cap on Russian oil or gas exports.
The meeting with the leaders comes at a crucial time for Biden, as Democrats enter the summer fighting to hold on to control of Congress in the midterm elections and some economists and Biden’s own Federal Reserve chair predicting the US could slip into a recession later this year or next. The trip offers Biden the opportunity to make the case to voters an back home that he’s pushing to address the economic pressures they’re facing.
“We expect that the global economy is going to be a very key point of discussion among the G7 leaders,” a senior administration official said. “I think that there’s going to be a lot of focus on what are the steps each country is taking domestically, what steps can be taken together in order to address the pressures that we’re seeing on the energy security front, in order to address the challenges that we’re seeing around food security, including for a number of lower income and vulnerable countries.”
The meeting in Germany is part of a wider stretch of international travel for Biden, who prides himself on his foreign policy skills after decades on the Senate Foreign Relations Committee. After Germany, will also directly go to Spain to meet with NATO leaders and head to Israel and Saudi Arabia in July. The trip follows stops in May in Japan and South Korea.
The G7 summit will include the leaders of Canada, Japan, the UK, Italy, France and Germany, which combined with the US make up half of the global economy.
While prices in the US are rising faster than those of the other G7 countries, inflation has been a concern globally as a result of Russia’s invasion of Ukraine and supply chain disruptions caused by the pandemic. Developing countries have been particularly hard, with inflation in Estonia topping 20 percent, Sri Lanka defaulting on its debt, and Pakistan at risk of economic collapse. China’s economic growth has also slowed the following months of rolling Covid lockdowns.
With a focus on the economy, the G7 countries also plan to announce new steps to increase pressure on Russia and show support for Ukraine along with broader efforts to “advance a vision of the world grounded in freedom and openness, not coercion, not aggression , not spheres of influence,” said a senior administration official.
“There’s some pretty significant headwinds here. You have Ukraine bogged down, you’ve got inflation raging, a series of crises from food to energy to helping the climate, so this is going to be a pretty challenging set of meetings,” said Matt Goodman, senior vice president for economics at the Center for Strategic and International Studies.
At home, Biden has acknowledged there is little he can do in the near term to help with rising gas and food prices, and he has been unable to get Congress to act on legislation he says would help struggling consumers by lowering prescription drug prices and providing clean energy tax credits.
Biden called on Congress Wednesday to enact a three-month gas tax holiday, a measure that is unlikely to get enough votes to pass and signals the few tools he has left to address high gas prices.
The president has tried to make the case to American consumers of the highest inflation in 40 years and record gas prices are a result of Russia’s invasion of Ukraine and oil companies—from the war as Republicans try to pin the blame on his policies.
“Defending freedom, defending democracy was not going to go without cost for the American people and the rest of the free world,” Biden said in remarks from the White House on gas prices Wednesday.
“We cut off Russian oil into the United States and our partners in Europe did the same knowing that we would see higher gas prices,” Biden said. “We could have turned a blind eye to Putin’s murderous ways. The price of gas wouldn’t have spiked the way it has. I believe that would have been wrong. I believed that then, and I believe it now. The free world had no choice.”
Officials with the G7 countries have been meeting ahead of the summit in Germany to work on a coordinated response to tamp down inflation by raising interest rates in hopes of cooling off the economy just enough to stem price increases while avoiding a global recession.
Among the economic topics leaders are expected to discuss are ways to increase available oil while at the same time continuing to put pressure on Russia.
“If there’s one thing these G7 leaders can do, it’s how do we bring more oil to the market, especially if we’re going to continue to restrict Russian oil,” said Josh Lipsky, director of the Atlantic Council’s GeoEconomics Center.
Another step being considered by Biden to try to lower costs for consumers is lifting all or some of the $350 billion in tariffs the Trump administration placed on Chinese imports. Treasury Secretary Janet Yellen, who has been a critic of the Trump-era tariffs, said during a congressional hearing earlier this month that some reductions may be warranted, but cautioned that the effects on consumer prices wouldn’t be “a panacea with respect to inflation.”
While the war in Ukraine has been a major contributor to rising energy and food prices, G7 leaders have shown no signs of wavering on their pressure campaign against Russia, though inflation will likely play a role in their decisions on steps going forward, said Goodman.
“It does have an impact on whether this group, and particularly I think President Biden, are going to be willing to consider potential new sanctions that could further exacerbate price increases,” he said. “I think, to the extent they do take further action, they’re going to be looking at things that don’t have that effect.”
During a meeting in May of the G7 finance ministers, officials said they planned to continue to reduce oil imports, in line with an approach taken by the European Union of phasing out Russian oil by the end of the year.
One strategy G7 countries have been discussing to mitigate the effect that would have on inflation would be agreeing on a price cap on Russia energy exports that would set a limit on how much countries would pay for Russian oil or gas.
But there are indications the shunning of Russian oil hasn’t had its intended effect. Despite efforts by countries like the US and Canada to punish Russia for cutting off oil imports, Russia has taken in a record amount of revenue since the start of the war due to the spike in oil prices, according to a report by the Center for Clean Energy and Fresh Air.
“We expect Ukraine to be at the very front of conversations” at the G7 meeting, said the senior administration official. “And we expect to roll out a concrete set of proposals to increase the pressure on Russia to support Ukraine during the course of the summit.”