Posted on Thu, Nov. 11, 2010
last updated: March 15, 2013 11:58:03 AM
SEOUL, South Korea — The Obama administration suffered a major setback Thursday with the announcement that it couldn't break the impasse over a long-anticipated U.S.-South Korean trade accord, continuing a rocky start for the U.S. at a conference of top world economies in Seoul.
The news followed more harsh criticism by China and Germany, the world's two biggest exporting powers, of the recent U.S. Federal Reserve move to buy $600 billion in Treasury bonds, depressing the value of the dollar.
American officials had hoped to unveil a deal on the free trade agreement at the start of meetings between leaders of the Group of 20 major and developing economies. Instead, President Obama and South Korean President Lee Myung-bak told reporters after a working lunch that negotiators need more time on the pact, which would boost trade between the two countries.
While both leaders cast the development as a temporary glitch, it was clearly a disappointment for an Obama team that entered the G20 looking to correct trade imbalances between the large U.S. deficit and surpluses in nations such as Germany and China.
Lee said the two countries had to "iron out the technical issues" of the agreement, originally signed in 2007 but never ratified in Congress.
That wasn't the only setback. The U.S. has also trimmed back its goal for major economic powers to cap their deficits or surpluses at specific levels, trying instead for consensus about the general principle of caps. Both Obama and Treasury Secretary Timothy Geithner are basing their case on the assertion that the rest of the world, particularly large export nations, needs the U.S. economy and its buying power to rebound.
"I don't think you'll get any objection to their belief that if the U.S. isn't growing, that's not good," Obama told reporters.
Obama said the communique to be issued at the end of meetings Friday will be a "broad-based agreement from all countries, including Germany, that we need to ensure balanced and sustainable growth. And it is my expectation that the communique will begin to put in place mechanisms that help us track and encourage such balanced and sustainable growth."
Disquiet over the Fed's decision this month to buy Treasury bonds through next year, a move that could drive down the value of the dollar, has overshadowed U.S. efforts to reach agreement on broader issues at the G20, which began Thursday. Economic officials from several leading economies have complained that the move, called quantitative easing, will give U.S. exporters unfair advantage, and encourage speculators to send enormous amounts of cash into emerging economies, thereby risking investment bubbles.
Asked if he's concerned about "hot" money coming into Korea, President Lee joked awkwardly that, "I think that kind of question should be asked to me when President Obama is not standing right next to me."
After telling reporters that he wasn't worried about an influx of money destabilizing his country, Lee added that "we hope that it will be a positive contribution to the recovery and the revival of the U.S. economy."
There were differing explanations Thursday for the holdup in the free-trade agreement, but the major issues appeared to be U.S. complaints about South Korean trade barriers for American automakers, and South Korea's reluctance to import more U.S. beef.
Mike Froman, the deputy national security adviser for international economic affairs, said that "autos is a major issue, a major outstanding issue . . . we've spent a great deal of time on autos in the last four days."
South Korea's Yonhap newswire, though, reported that Seoul negotiators had agreed to ease standards for U.S. car imports. The problem, according to Yonhap, is that "both sides have made little progress in the week-long talks due to differences on beef trade." The beef issue has been a sensitive one for South Korea since violent protests over the import of U.S. beef in 2008, sparked by fears of mad cow disease, turned into a government crisis.
Whatever the cause, Lee and Obama said they hope for a resolution in the coming weeks.
Also Thursday, Obama met with Chinese President Hu Jintao and again brought up the issue of China's currency valuation, according to U.S. officials.
Many U.S. political leaders argue that by keeping the yuan artificially low against the dollar, several studies have said by some 20 percent, China is not only pushing American exporters out of the market, but also distorting global trade balances.
That issue took up "by far the bulk of the meeting," said White House Press Secretary Robert Gibbs.
In an apparent reference to China, Obama said Thursday that "if individual countries are engaging in practices that are purposely designed to boost their exports at the expense of others, that can contribute to problems as opposed to solving them."
Chinese officials and analysts have repeatedly said that a rapid rise in the value of the yuan might sabotage China's economic well-being and create social instability, shut down factories and leave millions unemployed.
"If China has a rapid revaluation of the (yuan), it would hurt the export sector. Immediately," said Wang Youqin, an economics professor and analyst at Fudan University in Shanghai.
In the long run, Wang said, a gradual appreciation will be necessary to help Chinese plans to boost domestic economic demand and diversify beyond the current model of low-cost exports.
"Revaluation can be done, but it should not be done in too rapid a fashion," he said.
After Hu's closed door talk with Obama, there was no indication that China would reconsider that policy.
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