Obama proposal to limit global trade surpluses gets cool reception
An Obama administration proposal to set global curbs on the trade surpluses and deficits of major countries drew immediate opposition Friday from some key American allies and trading partners, underscoring the enormous challenge in restoring stability to the global economy.
Treasury Secretary Timothy F. Geithner unveiled the idea Friday before the start of a two-day meeting of finance ministers of the Group of 20 nations’ finance ministers in South Korea.
The U.S. also wants G-20 nations to commit not to undervalue their currencies to gain an edge in global markets — a move clearly targeted at China.
Geithner’s proposal, outlined in a letter, did not specify a numerical limit on trade imbalances, but a U.S. official familiar with the talks said the administration supported capping each country’s deficit or surplus at 4% of its economic output by 2015.
The meeting of finance ministers is meant to pave the way for discussions that could lead to the signing of an agreement at the G-20 summit in Seoul next month.
Washington’s proposal is aimed at reducing the large U.S. trade deficit as well as the big surpluses of China and other countries that have long relied on Americans as the consumers of last resort. U.S. officials argue that a rebalancing is needed for strong, sustained growth of the global economy and to prevent a recurrence of the recent worldwide financial crisis.
But with countries still feeling the pain of the recession, governments are reluctant to accept policies that might appear to penalize their own companies and workers.
The proposal for a specific limit garnered support from Britain, Australia, Canada and France — all of which are running trade deficits — as well as South Korea, which is hosting the G-20 meetings and hoping for a compromise among the parties.
The limit would apply to a country’s current account balance — surplus or deficit — as a percentage of its gross domestic product. A country’s current account is a measure of trade that includes certain cross-border payments as well as trade of goods and services.
But the U.S. idea got a cool reception from some export powerhouses such as China, which has a surplus of 4.7% of its economy, and Germany, with an even higher surplus of 6.1% of gross domestic product.
“China never pursues trade surplus, nor has it manipulated its currency to gain trade benefits,” the Chinese Embassy said in a statement. “China will continue to work with the U.S. and other countries to promote balanced and sustainable international trade and solidify the still fragile recovery of the world economy.
Japan, with a surplus of 3.1% of GDP, appeared to give lukewarm support for the plan.
A U.S. official familiar with the discussions downplayed expectations that the G-20 finance officials, whose meeting ends Saturday, would agree to numerical limits on trade imbalances.
U.S. officials are more likely to succeed in getting an agreement for countries to refrain from devaluing their currencies for competitive reasons.
Another goal of the U.S. at the G-20 is to establish a more-enhanced role for the International Monetary Fund, so it would have a stronger hand in monitoring and helping implement G-20 agreements.
Raghuram Rajan, a University of Chicago finance professor and former chief economist at the IMF, doubted that the IMF would be able to do that much more, even with a higher profile.
“In truth, the IMF has little power of sanction over large members that do not need its money,” he said. “And countries like China or the U.S. are not likely to give it power over their policies.”
Of the U.S. proposal to set limits on individual countries’ trade imbalances, he said: “My guess is that it will be hard for them to agree on a numeric target that is meaningful, especially because it is not always clear what policies will get them to that target smoothly, and because the costs of adjustment differ across countries. I would expect more waffley statements about how it is important to bring trade imbalances under control.”
Times staff writer Jim Puzzanghera contributed to this report.
