U.S. on the defensive at G-20 summit
President Obama arrived here on the defensive Wednesday for a two-day meeting with leaders of the world’s biggest economies, a summit that had raised hopes of charting a common path to a more balanced global recovery but instead threatened to founder amid competing national interests.
Obama must now contain a gathering storm over the recent U.S. decision to pump billions of dollars into the American financial system. The move is aimed at spurring U.S. jobs and exports with cheaper credit, but it has drawn the U.S. into a confrontation with other export-driven economies, notably China and Germany, as well as nervous emerging nations.
Although the U.S. economy is still struggling to recover from a devastating recession, some of its chief competitors are growing briskly and are in no mood to sacrifice on Washington’s behalf.
As a result, this meeting of the Group of 20 nations — a self-appointed steering committee for the global economy — takes place at a critical juncture: After cooperating to avert a worldwide financial collapse two years ago, leaders now find themselves deeply divided on a host of issues, including currency imbalances and debt.
The question facing the leaders in what are expected to be tense sessions in Seoul is whether to join in a united effort to forge a new and more stable economic order, or pursue separate goals and risk another crisis.
“For the past quarter-century, U.S. consumers have powered the growth in the global economy,” said Mark Zandi, chief economist at Moody’s Analytics.
But in this post-recession period, “that is over,” Zandi said. “That transition, that global rebalancing, is very difficult. It’s a long process.”
Obama’s mantra at the G-20 table will be that future global growth depends on a rebalancing of global trade, which means other countries should sell more of their products at home — and consume more imports —while selling less to over-indebted Americans.
“Just as the United States must change, so too must those economies that have previously relied on exports to offset weaknesses in their own demand,” he said in a letter sent to G-20 leaders on the eve of the meeting.
Although the leaders agree that a rebalancing is needed in the long run, not all share Obama’s urgency to see it done.
Embracing Obama’s prescription now would probably mean hurting the economies of the major exporting countries. As a result, many world leaders favor a strategy spread over a period of years, perhaps even a decade — far too slow a pace for an American president facing near-double-digit unemployment and an electorate that just inflicted humiliating losses on his fellow Democrats in the midterm election.
“Obama’s timetable is not compatible with the timetable of our trading partners,” said Clyde Prestowitz, a trade negotiator in the Reagan administration and author of several books on globalization. “Even if China, Korea and others in Asia agree to significant revaluation [of their currencies], it’s clear they have no thought of revaluing in the time frame Obama needs.”
In addition to economic factors, Obama’s bargaining power was reduced by his party’s election losses last week, which many viewed as a referendum on the president’s handling of the economy.
Obama has pledged to double U.S. exports in five years as a way to create new jobs. But critics warn that even that won’t help generate a big jump in net employment if higher exports are matched and exceeded by continued growth in imports.
On Wednesday, the Commerce Department reported that the U.S. trade deficit jumped 40% in the first nine months of this year, to $379 billion, despite increased export sales by U.S. companies. Although exports grew, imports grew much faster as consumers became more confident about spending.
China accounted for more than 40% of the imbalance.
The Obama administration has blamed China’s cheap currency for the discrepancy. It has stepped up its criticisms of China’s undervalued yuan, which makes Chinese exports more competitive by making them cheaper overseas.
Chinese officials have repeatedly denied that they manipulate currency-exchange rates for competitive reasons, and although many analysts believe that Beijing has long held down the value of the yuan to support export industries and jobs, there are wide differences among experts on how much the yuan may be undervalued.
The administration had hoped to use the G-20 gathering to put China’s currency policy under scrutiny. Instead, it has found itself on the defensive after the Federal Reserve unveiled its plan to boost the economy by buying $600 billion worth of long-term bonds.
Finance officials from China, Germany, Russia and Brazil complained about the U.S. central bank’s move as something that would debase the dollar and increase the risk of forming asset bubbles in emerging countries as investors move cheap dollars into faster-growing economies that pay higher returns.
Before the Seoul summit, Chinese officials sharpened their criticisms of the Fed’s bond-purchase plan, and a Chinese rating agency downgraded U.S. debt and described the credit outlook for the United States as “negative.”
China is America’s largest foreign creditor, holding hundreds of billions of U.S. Treasury securities.
German leaders also criticized the move, complaining that the U.S. was merely extending its addiction to living on borrowed money.
Those sharp comments cast a pall over the gathering and reduced expectations for any major policy breakthrough.
U.S. officials tried to strike an optimistic tone, suggesting that the summit might produce a commitment to broad principles on rebalancing trade while leaving the details for another day.
But it remained uncertain whether the leaders can paper over their divisions in Seoul enough to calm fears of falling back into recession.
