SEOUL — For President Barack Obama to gain traction with world leaders on trade and other issues widely seen as a key to America’s economic health, he’ll need cooperation at the talks starting here Thursday from the world’s two biggest exporters — China and Germany.
That’s not going to happen soon, if the past few days are any guide,
Both China and Germany have publicly slammed the U.S. Federal Reserve’s recent decision to buy $600 billion of Treasury bonds, a move Washington maintains will jumpstart the American economy and fuel employment. Both governments argued that the infusion of cash would devalue the dollar _ essentially manipulating currency to give U.S. exporters a leg up _ raise prices for commodities like oil, and risk creating an overflow of cash that could create investment bubbles in developing nations.
Chinese state media carried an editorial Wednesday with the headline: “Dollar bonanza may cripple delicate global economy.”
Those tensions are tamping down expectations for major progress during meetings between leaders from the Group of 20 major and developing economies. They also highlight the difficult balancing act between the United States and China, the world’s two biggest economies, which disagree on many things but had $366 billion in trade last year.
The complexity of that relationship, so fundamental to global affairs that some refer to the pairing as the “G2,” makes quick breakthroughs difficult, if not impossible, observers say.
“I think it would be unrealistic to expect too much from the G20,” said Jia Qingguo, a senior professor and associate dean of Beijing University’s School of International Studies. “First of all, there are so many issues on the table that they are difficult to manage.”
Ironically, the U.S. for years has accused China of doing something similar to what Beijing is now complaining about. By keeping the value of the Chinese yuan low to help its exporters, which often operate at slim profit margins, China continues to supply the world with cheaply priced goods. Many American officials argue that the resulting divide between ballooning Chinese trade surpluses and U.S. deficits has cost U.S. employment and created imbalances in the global economy.
In a letter Obama sent fellow G20 leaders this week and an opinion article co-authored by U.S. Treasury Secretary Timothy Geithner, Washington sent signals in the run-up to the meetings that it wants to see China open up its carefully-managed currency to a broader trading band.
Obama emphasized that “a rebalancing of the sources of global demand, along with market determination of exchange rates that reverses significant undervaluation, are the best base for the shifts needed to bring about the vigorous and well-balanced recovery that we all want.”
Geithner, Singaporean Finance Minister Tharman Shanmugaratnam and Australian Treasurer Wayne Swan amplified on that view in an op-ed column.
“The emerging economies need to allow their exchange rates to reflect the substantial growth they have achieved in their economies over the last decade and to respond more flexibly to underlying market forces,” they wrote for the Wall Street Journal Wednesday.
However, the controversy over the $600 billion of quantitative easing appears to have weakened the U.S. hand in Seoul.
German Finance Minister Wolfgang Schäuble recently told Der Spiegel magazine “it doesn’t add up when the Americans accuse the Chinese of currency manipulation and then, with the help of their central bank’s printing presses, artificially lower the value of the dollar.”
Responding to that quote at a press conference in India on Monday, Obama said “we can’t continue to sustain a situation in which some countries are maintaining massive surpluses, others massive deficits, and there never is the kind of adjustments with respect to currency that would lead to a more balanced growth pattern.”
The Washington-based Peterson Institute of International Economics released a report Tuesday that identified 17 nations that have intervened in some way in foreign exchange markets. Eleven of these 17 have done so to maintain a balance, or equilibrium, rather than gain a competitive advantage.
The report, designed to influence discussions in Seoul, lumped the United States in this category, suggesting the weak dollar is a consequence of the Fed’s action, but not its goal. The report also noted that the yuan is undervalued by almost 20 percent versus the dollar.
Geithner has been fighting to convince other nations to adopt hard targets that would define acceptable levels of surpluses or deficits in their trade with the rest of the world.
The proposal, strongly resisted by Germany, is designed to create a more acceptable way for China to address its massive surpluses with the United States and most other developed nations without formally being labeled a currency manipulator. China could then move to address its global imbalances under the cover that it is meeting G-20 obligations, and not succumbing to pressure from Washington.
The German-led opposition, however, makes it likely that the final communique is going to speak of warning indicators that signal a country has trade imbalances, rather than have hard triggers that would require corrective action.
On the sidelines of the G-20, the U.S. and South Korea are hoping to broker a possible breakthrough in a long-stalled, already negotiated free-trade agreement that could provide both a trade bump and be a further counterbalance to China in East Asia.
U.S. Trade Representative Ron Kirk has been meeting with his Korean counterpart in Seoul this week, though there’ve been no formal announcements of a deal. Jeffrey Schott, a trade expert at the Peterson Institute, said there are signs that Korea will yield on U.S. demands for greater market access to automakers and auto parts manufacturers, while the United States is expected to soften its demands on access for some U.S. beef products. The issue of beef is particularly sensitive in Korea, where violent protests over the import of U.S. beef in 2008, sparked by fears of mad cow disease, turned into a major crisis for the government.
“The U.S. gets a little more on auto, the Koreans stand firm on beef_ win-win,” Schott said.
(Hall reported from Washington.)
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