Many of the world leaders convened in Seoul, South Korea for the fifth G20 summit were reportedly in agreement on the need to reduce global trade imbalances on Thursday. It remains unlikely however that the two largest surplus economies, China and Germany, will submit to an accord that forces them to radically change policy.
President Barack Obama, who regards economic imbalance as the greatest impediment to the global recovery, has met separately with his Chinese counterpart Hu Jintao as well as Chancellor Angela Merkel of Germany to discuss the details of a joint statement that the G20 will issue on Friday. China is particularly keen to avoid language that would suggest it has to appreciate its currency, the yuan, now artificially kept low in order to boost exports. The Chinese point at the United States’ own expansionary monetary policy as an attempt to drive down the exchange rate of the dollar and help American exporters.
US Treasury Secretary Timothy Geithner urged China and Germany last month to refocus their economies. “For too long many countries oriented their economies toward producing for export,” he proclaimed, “rather than consuming at home — counting on the United States to import more of their goods and services than they bought of ours.” Such countries, he added, will have to “boost domestic demand.” Germany is booming because of a recent surge in exports while China fears that any slowdown in economic development could unleash its internal forces of discontent.
The Chinese president, in a brief statement before meeting Obama, said only that he hoped China and the United States would move forward “on a positive, cooperative and comprehensive track.” Chancellor Merkel was more specific, noting that current account balances are hard to target. “What’s important is that we don’t resort to protectionist measures,” she declared. She suggested that it was the responsibility of deficit countries — which she didn’t mention — to improve their own competitiveness. “In the task ahead, the benchmark has to be the countries that have been most competitive, not to reduce to the lowest common denominator.”
Prime Minister David Cameron similarly opposed protectionism, promising a gathering of business leaders on Thursday to fight trade barriers and currency wars. “We’re going to fight competitive devaluations,” he added, apparently preparing for a showdown with China.
The conservative leader also warned of mounting trade imbalances, noting that one of the causes of the crisis “was the fact that we had a wall of saving in the East and a wall of debt in the West.”
Britain, like the United States, largely relied on domestic consumption for growth during the years preceding the current recession — consumption that was financed with a great amount of debt. The two countries are pursuing very different policies in the wake of the meltdown however. Whereas David Cameron’s government has announced deep spending cuts and entitlement reform, President Obama has remained a proponent of stimulus and deficit spending. His own party has strongly rejected proposals to reform expensive welfare programs this just week.