G20 leaders vowed yesterday to avoid currency manipulation and trade protectionism, but bad blood between China and the United States blocked deeper progress in rebalancing the skewed global economy.
After a stormy two-day summit, the leaders of the world’s biggest rich and emerging economies agreed in a declaration to craft “indicative guidelines” to re-orient imbalanced trade between surplus and deficit nations.
Due to Chinese-led resistance to binding trade targets, that was far less ambitious than sought by the United States 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 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 World Trade Organisation’s “Doha round” of talks to be concluded next year, and expressed commitment “to resisting all forms of trade protectionism”.
President Hu had presented his own counter-proposals in Seoul, calling on the debt-burdened United States to adopt “responsible policies” and maintain a stable dollar.
The Chinese leader, who presides over the world’s second-largest economy and its largest exporter, 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.
The G20 statement was only struck after a week of late-night negotiating sessions in Seoul. It risks being seen by markets as toothless, shorn of US proposals to limit trade surpluses and deficits to a specific level.
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.
“The worst the G20 could have done is to just diplomatically paper over conflicts and tensions that keep brewing more and more dangerously”, he told AFP.
China, backed by other export titans such as Germany, intensified an anti-US offensive last week when the Federal Reserve instituted a 600-billion-dollar attempt to reflate the US economy.
They argue that the Fed’s “quantitative easing” policy is a back-door way for the United States to depress the dollar and trade its way back to prosperity, at the expense of export-reliant countries around the world.
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”.
The International Monetary Fund was asked to support the process, and the G20 leaders endorsed a shake-up at the IMF that will give emerging powers including China a bigger say in its running.
IMF managing director Dominique Strauss-Kahn acknowledged that the G20 was finding the going tougher today than when it hurried to roll out stimulus plans worldwide in the face of the financial crisis.