G20 leaders vowed yesterday to avoid currency manipulation and trade protectionism, but deep differences between China and the US prevented major progress in rebalancing the skewed global economy.
In a summit declaration, the leaders of the world’s biggest rich and emerging economies agreed to craft “indicative guidelines” to reorient trade between surplus and deficit nations.
Thanks to Chinese-led resistance to binding trade targets, that was far less ambitious than sought by the US as the world’s richest power nurses a hangover from its worst recession since the 1930s.
US President Barack Obama renewed an offensive on the Chinese yuan, which critics say is kept deliberately cheap to support Chinese exporters at the expense of US jobs.
“It is undervalued and China spends enormous amounts of money intervening in the market to keep it undervalued,” Obama told a news conference, continuing a jobs-themed Asian tour after a mid-term electoral drubbing last week.
Obama, Chinese President Hu Jintao (胡錦濤) and the other G20 leaders warned that “risks remain” to the global economy and said that “uncoordinated policy actions will only lead to worse outcomes for all.”
Their statement pledged to move “toward more market--determined exchange rate systems” and to refrain from “competitive devaluation of currencies.”
They renewed calls for the WTO’s “Doha round” of talks to be concluded next year and expressed commitment “to resisting all forms of trade protectionism.”
The statement was only achieved after late-night negotiating sessions all week in Seoul and risks being seen by financial markets as toothless, shorn of US proposals to limit trade surpluses and deficits to a specific level.
China, backed by other export titans such as Germany, launched a furious counter--offensive that intensified last week when the Federal Reserve instituted a US$600 billion attempt to reinflate the US economy.
They said that the Fed’s “quantitative easing” policy was a back-door way for the US to depress the dollar and trade its way back to prosperity.
In the end, the G20 leaders settled for vague language and an indeterminate timetable on redressing trade imbalances. They told their finance ministers to write the non-binding guidelines “and pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels.”
Hu had presented his own counter-proposals in Seoul, calling on the US to adopt “responsible policies” and maintain a stable dollar. He also demanded global resistance to trade barriers as he painted a bleak picture of the economic outlook.
“The international financial markets are volatile, the fluctuation in the major currencies is large, prices of commodities are high and there is a clear rise in protectionism,” he said.
Marco Annunziata, chief economist with the UniCredit Group in London, said the G20 had flunked its test after acting decisively to ward off a global panic in late 2008.
In the long run, “the worst the G20 could have done is to just diplomatically paper over conflicts and tensions that keep brewing more and more dangerously,” he said.
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