The Group of 20 is struggling to build on a commitment last month to address currency and trade imbalances blamed for fuelling asset bubbles and stoking protectionism.
US President Barack Obama and his Chinese counterpart Hu Jintao spent “the bulk” of an 80-minute meeting Seoul discussing exchange rates before sitting down with other leaders to begin their summit tonight. Canadian Prime Minister Stephen Harper said he’s “not so sure” an agreement will be reached by the end of proceedings in the South Korean capital tomorrow.
Obama and Hu are pivotal to bridge global disagreements over how to spur economic growth and better balance trade between exporters such as China, and net importers like the US. Failure to reconcile the diverging views on which of the world’s two biggest economies should do more to resolve the problem risks fuelling capital controls and hobbling the global recovery.
“They have to deal with the underlying causes for this instability, which are these imbalances,” said Josef Ackermann, chairman of the management board of Frankfurt-based Deutsche Bank AG. “It’s not about assigning blame to who is in deficit and who is in surplus — the markets will decide who is in surplus and who in deficit — but to create a framework to find the right balance.”
A meeting of finance ministers and central bankers last month agreed to move toward “more market-determined exchange rate systems” and make efforts on “reducing excessive imbalances.”
The US Federal Reserve a week later said it would pump $600 billion into the economy to boost growth. Brazil, Germany and China said the move would drive down the dollar and fuel speculative flows of capital that risk asset bubbles.
‘Huge engine’
“The most important thing the United States can do for the world economy is to grow because we continue to be the world’s largest market and a huge engine for all other countries to grow,” President Barack Obama said at a press conference today with South Korean President Lee Myung Bak.
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China’s record $28 billion trade surplus with the US in August — announced on the eve of the summit — heightened criticism its government maintains an unfair cap on yuan appreciation to the detriment of US businesses. Obama, who has pledged to double exports within five years, has sought to broaden the currency debate by linking it to a worldwide effort to rein in current-account imbalances.
At their meeting, Obama pressed Hu to allow faster currency appreciation to help narrow trade imbalances, White House press secretary Robert Gibbs told reporters in Seoul. Hu reiterated his commitment to move forward on the issue and noted “the movement in the currency” thus far, said Lael Brainard, the Treasury Department’s undersecretary for international affairs.
China, the US’s second-largest trading partner, after Canada, had a trade surplus in excess of $170 billion with the US in the 12 months through August, according to the American Department of Commerce. China yesterday posted a larger-than- forecast $27.1 billion trade surplus in October as exports rose 23 per cent from a year earlier.
Obama is facing demands from US lawmakers to put more pressure on China over its currency. The yuan today rose to its highest against the dollar since 1993.