When leaders of the world’s 20 largest economies met in Washington, D.C. two years ago, their common goal was to combat the worldwide recession. But with President Obama and the heads of the Group of 20 nations arriving in Seoul, South Korea, this week to begin a two-day summit on Thursday, finding common ground promises to be much harder. Leaders of China, Germany, Russia and Brazil already are steaming over the Federal Reserve’s decision last week to pump $600 billion into the U.S. financial system to spur the flagging economy—a move these countries say will weaken the dollar while driving up the value of their own currencies and damaging their exports.
Such discord highlights the main task of the summit’s five-point agenda: to reconcile conflicts between countries like China that run vast trade surpluses and countries such as the United States whose trade accounts are deeply in the red. The trick will be to “formulate guidelines, if not binding rules,” for easing these imbalances, says Princeton economist and professor emeritus Peter B. Kenen, who advised presidents Kennedy, Carter and Clinton on international monetary issues.
But any path to meaningful agreements will be thorny. Just how thorny could be seen when trade figures released this week showed China with a $27.1 billion trade surplus for October, up more than 23% from the same month a year ago. “The Chinese say they have allowed their exchange rate to appreciate in the last year or so,” says Kenen. “But it takes a magnifying glass to see the extent of the appreciation, which is no more than 1%.”
The G-20 has neither decision-making nor enforcement powers over the countries that comprise it. Its role is limited to issuing communiqués with guidelines for economic action. Formed in 1999 as a forum for finance ministers and other economic policy makers, the group gained prominence when the financial crisis hit in 2008, and has since met four times before this week.
High on the list of U.S. priorities for this week’s summit is Treasury Secretary Timothy Geithner’s proposal to limit the surpluses or deficits in a country’s current account—a broad measure of trade and capital flows—to 4% of that country’s GDP. Also on the agenda are endorsing stiff new capital requirements for the world’s banks, and South Korea’s push for financial safety nets for countries faced with massive cash outflows.
The United States and South Korea have been rushing to wrap-up two-way trade talks on the largest U.S. deal since the North American Free Trade Agreement, with the two sides hoping to complete a pact before the meeting. Seoul originally struck a deal with the Bush administration in 2007, but that agreement came apart in Congress when U.S. automakers objected that it failed to open the South Korean car market wide enough.
A completed deal could set the stage for future two-way talks between the United States and other countries that want more access to its markets. But such negotiations may have to wait for completion of the long-stalled World Trade Organization talks under the so-called Doha Development Round that began in 2001 and broke down in 2008 over agricultural sticking points.
Kenen looks for progress from the G-20 on its own sticking points this week. “I would not be surprised if the communiqué calls on countries with persistent surpluses and deficits to take steps to end them,” he says. Even without detailed commitments from each country, he adds, “for all of them to express concern about these imbalances will lay the groundwork for further negotiation and consultation and pressure where necessary.”
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