The Chinese won’t have to fight for their position at the G-20 summit this week in Seoul. This time, they have friends. The Germans. The Brazilians. The South Africans. Even the Indians. For the time being, at least.
This is very different to the G-20 meeting in June at Toronto. Then, China stood in the accused’s dock. US treasury secretary Timothy Geithner was calling for a “balanced” trade policy, and criticising the “manipulation” of the Chinese yuan. But he didn’t achieve much. For a long time, he has been trying to put China under pressure because it keeps its currency value low to export its products cheaper. He was not even sworn in and he had already zeroed on China.
Beijing's reaction has, however, been symbolic. Steps to allow the yuan to appreciate came late and were rather cosmetic, about two per cent since June. This has no significance for world trade. Beijing gave some way in June not because of Geithner's arguments but to avoid having all fingers pointed at their President Hu Jintao during the Toronto summit. Giving Geithner some cause for pride.
US in the dock
Geithner and his boss, Barack Obama, will miss this feeling in Seoul. This time, they have only themselves to blame. To the great surprise of the world, the US Federal Reserve stands accused of the same offence as the Chinese central bank: they, too, are holding their currency artificially low. Since the dollar does not have the option of being coupled to another currency and interest rates cannot be reduced further, they have just had to print money: Again, the US federal government is buying bonds, this time to the value of $600 billion.
That has caused consternation, especially in emerging markets such as Brazil, India, South Africa and even Russia, where currencies are traded freely. More out of embarrassment than conviction, more investors are now buying these currencies. These are already shooting up, making the products from these countries more expensive. Many heads of government are, therefore, travelling to Seoul with irritation in their baggage. Even the Germans, who currently feel like an emerging market although they don’t belong to that clubs. “With all due respect, clueless,” German finance minister Wolfgang Schäuble called the US decision to print more money. This was quoted in China, often and with relish. Really creative was, however, the official Chinese response: The proposal, which the Americans had added, namely to limit trade surpluses and deficits internationally, reminds of “the days of planned economy,” said Chinese Vice Foreign Minister Cui Tiankao, with a broad smirk. He will lead the negotiations for China at the G-20 summit.
The fact that the Americans have isolated themselves does not mean they have lost power. On the contrary. They have shown they are still good for an indomitable solo. To the surprise of all, the Americans are still playing ‘Yes, we can!’ with the world.
Discomfiting queries
However, the stakes are high; economically and politically. Opponents of the U.S. can now counter-attack and take advantage of the open space. This was already on show at the APEC finance ministers’ meeting last weekend, where it became clear that the American heave-ho action, the argument for a balanced world trade, which has kept Geithner afloat for the past two years, has lost steam.
“What is balanced?”, asked the self-confident Asians rhetorically. Does ‘balanced’ mean that rich countries stay rich and poor countries stay poor? Isn’t a balanced trading system one that helps reduce the gap between rich and poor? Would that not mean, one has to wonder, that developing countries would be allowed higher trade surpluses, since these serve the rise of the poor in the country. And does this not imply that there is a need for the highly indebted Western countries to put up tougher austerity measures, since they have been living beyond their means for years? All this is reminiscent of the climate summit debates a year ago in Copenhagen, when the question was, who is allowed to produce how many greenhouse gases in the future. Is the G-20 in Seoul a déjà vu?
At this point, Geithner has backtracked again. He will not demand trade restrictions any more. He will try to position the US in the foreground and to push the Chinese again to the rear. This will be a priority target at the G-20 Summit. But even if he should succeed, contrary to expectations, the uncomfortable questions the Americans actions raise stand like an elephant in the political arena that, if they are lucky other members of the G-20 will skirt around. Especially members from the West.
(Frank Sieren, living in Beijing for 15 years, is a leading German expert on China. His brother, Andreas Sieren, is a journalist and specialist in international relations and development aid)
