Tweet
November 10, 2010
In Message to G-20 Leaders, Obama Aims to Calm Tensions
By SEWELL CHAN and SHERYL GAY STOLBERG
SEOUL, South Korea — President Obama, marking the start of a summit meeting that has already tested the limits of international cooperation, implored other world leaders on Wednesday to shift global economic demand away from its historic reliance on American consumption and borrowing.
In a letter to other leaders of the Group of 20 economic powers, released shortly after he arrived here, Mr. Obama tried to calm the currency tensions that have roiled global economic relations, though he did not mention by name the two most prominent sources of the tension: China’s foreign-exchange interventions and the Federal Reserve’s recent decision to inject $600 billion into the economy.
“We all now recognize that the foundation for a strong and durable recovery will not materialize if American households stop saving and go back to spending based on borrowing,” Mr. Obama wrote. “Yet no one country can achieve our joint objective of a strong, sustainable and balanced recovery on its own.”
In an op-ed article for the Asian edition of The Wall Street Journal, the Treasury secretary, Timothy F. Geithner, joined Tharman Shanmugaratnam, the finance minister of Singapore, and Wayne Swan, the treasurer of Australia, in warning that a “two-track recovery will dominate the global economy for a long time to come” and will require new forms of cooperation.
Together, Mr. Obama’s letter and Mr. Geithner’s article laid out a strategy that combined an appeal to reason, an avoidance of confrontation and more than a little humility. The benefit of their approach, they said, would be higher overall growth in the long term.
But it remained to be seen whether China and Germany, the world’s two most powerful surplus economies, would take steps to curb their reliance on exports and their high rates of savings and to increase their relatively low consumption, as American officials argue is needed. In the run-up to the two-day meeting that begins Thursday, officials from both nations unleashed stinging criticism of the Fed, accusing the United States central bank of essentially playing tricks with its economy to prop up a flagging recovery.
Mr. Obama’s letter indirectly defended the Fed, buttressing his argument that the world needs a robust United States recovery even though it should no longer depend on the American consumer to serve as the mainstay of demand.
“A strong recovery that creates jobs, income and spending is the most important contribution the United States can make to the global recovery,” Mr. Obama wrote in the letter. “The dollar’s strength ultimately rests on the fundamental strength of the U.S. economy.”
A few hours after Mr. Obama’s letter was released, the Commerce Department reported that American exports grew 0.3 percent in September while imports fell 1 percent. Exports through the first nine months of the year are up nearly 18 percent from the period a year.
“Our renewed focus on trade promotion is helping to grow exports, which are critical to our continued economic growth,” the commerce secretary, Gary Locke, said in a statement from Yokohama, Japan, where Mr. Obama is to travel on Friday evening for meetings of the Asia-Pacific Economic Cooperation forum.
Mr. Obama’s letter reiterated goals the Americans have been articulating for months, but he omitted specific policy prescriptions — notably, a proposal by Mr. Geithner that each G-20 economy commit to limiting the surplus or deficit on its current account, a broad measure of a nation’s trade, to no more than 4 percent of gross domestic product.
“A rebalancing of the sources of global demand, along with market determination of exchange rates that reverses significant undervaluation, are the best base for the shifts needed to bring about the vigorous and well-balanced recovery that we all want,” Mr. Obama wrote. “When all nations do their part — emerging no less than advanced, surplus no less than deficit — we all benefit from higher growth.”
In his article with Mr. Tharman and Mr. Swan, Mr. Geithner was slightly more pointed.
“Currency issues were once left to the United States, Europe, and Japan, but that will no longer work in the new world economy,” he wrote, acknowledging that the days in which American officials could more or less dictate global monetary policy were ended.
The three men wrote that “the currencies of the major advanced economies are roughly in alignment with each other today” and that the major nations should avoid currency volatility, but they added that “emerging economies need to allow their exchange rates to reflect the substantial growth they have achieved in their economies over the last decade.”
The pair of new American statements also acknowledged the anxiety felt by fast-growing emerging markets like South Korea, the host of this year’s G-20 summit meeting, over the surge of capital flows that have been entering their economies, driving up currencies, interest rates and inflation and raising the risk of unsustainable asset bubbles.
“This is a better problem to have than the alternative, but capital inflows create pressures, especially in asset markets that must be managed carefully and with a range of policy tools,” Mr. Geithner, Mr. Tharman and Mr. Swan wrote.
Despite the conciliatory tone, it remained far from clear how much Mr. Obama and Mr. Geithner’s message would affect the final G-20 communiqué, which will be released Friday and requires the consensus of all the members.
Uri Dadush, who directs the international economics program at the Carnegie Endowment for International Peace, said the system of flexible exchange rates that had existed since 1971 was at risk of breaking down.
“At the heart of the problem is the unwillingness of the big players — and here I would single out the United States, Germany and China — to deal with their own domestic problem,” Mr. Dadush said.
He said that the United States needed to stimulate demand in the short run but curb its addiction to borrowing in the long run; that China needs to reduce its reliance on exports and allow its consumers to buy more and save less; and that Germany needs to wean itself off the fixation on frugality and productivity that helped it through reunification in 1990 but that now poses a threat to the economic integration of Europe.
Mr. Dadush’s view is the mainstream one, and one shared by the United States. As Mr. Obama put it: “Just as the United States must change, so too must those economies that have previously relied on exports to offset weaknesses in their own demand.”
And yet the road to getting there goes through what seem to be insurmountable political hurdles.
“China wants to preserve export-led growth strategy and on the other hand the United States needs the impetus of a weaker dollar,” said Arvind Subramanian, an economist at the Peterson Institute for International Economics and the Center for Global Development. “These are fundamentally incompatible objectives. Each side has become so powerful geopolitically that neither side has the levers to persuade the other change.”
China does not seem persuaded that rebalancing is in its short-term interests, Mr. Subramanian said, adding, “Until that plays itself out, I don’t see any quick, easy or frictionless way forward.”
Mr. Subramanian said he was also skeptical about the effectiveness of American appeals to China’s perceived self-interest.
“It’s always awkward for outsiders to tell China what’s in its self-interest,” he said. “This is a country that has posted the longest, highest rates of economic growth in history. Outside advice is simply not credible, even if it’s economically true.”
In Message to G-20 Leaders, Obama Aims to Calm Tensions
By SEWELL CHAN and SHERYL GAY STOLBERG
SEOUL, South Korea — President Obama, marking the start of a summit meeting that has already tested the limits of international cooperation, implored other world leaders on Wednesday to shift global economic demand away from its historic reliance on American consumption and borrowing.
In a letter to other leaders of the Group of 20 economic powers, released shortly after he arrived here, Mr. Obama tried to calm the currency tensions that have roiled global economic relations, though he did not mention by name the two most prominent sources of the tension: China’s foreign-exchange interventions and the Federal Reserve’s recent decision to inject $600 billion into the economy.
“We all now recognize that the foundation for a strong and durable recovery will not materialize if American households stop saving and go back to spending based on borrowing,” Mr. Obama wrote. “Yet no one country can achieve our joint objective of a strong, sustainable and balanced recovery on its own.”
In an op-ed article for the Asian edition of The Wall Street Journal, the Treasury secretary, Timothy F. Geithner, joined Tharman Shanmugaratnam, the finance minister of Singapore, and Wayne Swan, the treasurer of Australia, in warning that a “two-track recovery will dominate the global economy for a long time to come” and will require new forms of cooperation.
Together, Mr. Obama’s letter and Mr. Geithner’s article laid out a strategy that combined an appeal to reason, an avoidance of confrontation and more than a little humility. The benefit of their approach, they said, would be higher overall growth in the long term.
But it remained to be seen whether China and Germany, the world’s two most powerful surplus economies, would take steps to curb their reliance on exports and their high rates of savings and to increase their relatively low consumption, as American officials argue is needed. In the run-up to the two-day meeting that begins Thursday, officials from both nations unleashed stinging criticism of the Fed, accusing the United States central bank of essentially playing tricks with its economy to prop up a flagging recovery.
Mr. Obama’s letter indirectly defended the Fed, buttressing his argument that the world needs a robust United States recovery even though it should no longer depend on the American consumer to serve as the mainstay of demand.
“A strong recovery that creates jobs, income and spending is the most important contribution the United States can make to the global recovery,” Mr. Obama wrote in the letter. “The dollar’s strength ultimately rests on the fundamental strength of the U.S. economy.”
A few hours after Mr. Obama’s letter was released, the Commerce Department reported that American exports grew 0.3 percent in September while imports fell 1 percent. Exports through the first nine months of the year are up nearly 18 percent from the period a year.
“Our renewed focus on trade promotion is helping to grow exports, which are critical to our continued economic growth,” the commerce secretary, Gary Locke, said in a statement from Yokohama, Japan, where Mr. Obama is to travel on Friday evening for meetings of the Asia-Pacific Economic Cooperation forum.
Mr. Obama’s letter reiterated goals the Americans have been articulating for months, but he omitted specific policy prescriptions — notably, a proposal by Mr. Geithner that each G-20 economy commit to limiting the surplus or deficit on its current account, a broad measure of a nation’s trade, to no more than 4 percent of gross domestic product.
“A rebalancing of the sources of global demand, along with market determination of exchange rates that reverses significant undervaluation, are the best base for the shifts needed to bring about the vigorous and well-balanced recovery that we all want,” Mr. Obama wrote. “When all nations do their part — emerging no less than advanced, surplus no less than deficit — we all benefit from higher growth.”
In his article with Mr. Tharman and Mr. Swan, Mr. Geithner was slightly more pointed.
“Currency issues were once left to the United States, Europe, and Japan, but that will no longer work in the new world economy,” he wrote, acknowledging that the days in which American officials could more or less dictate global monetary policy were ended.
The three men wrote that “the currencies of the major advanced economies are roughly in alignment with each other today” and that the major nations should avoid currency volatility, but they added that “emerging economies need to allow their exchange rates to reflect the substantial growth they have achieved in their economies over the last decade.”
The pair of new American statements also acknowledged the anxiety felt by fast-growing emerging markets like South Korea, the host of this year’s G-20 summit meeting, over the surge of capital flows that have been entering their economies, driving up currencies, interest rates and inflation and raising the risk of unsustainable asset bubbles.
“This is a better problem to have than the alternative, but capital inflows create pressures, especially in asset markets that must be managed carefully and with a range of policy tools,” Mr. Geithner, Mr. Tharman and Mr. Swan wrote.
Despite the conciliatory tone, it remained far from clear how much Mr. Obama and Mr. Geithner’s message would affect the final G-20 communiqué, which will be released Friday and requires the consensus of all the members.
Uri Dadush, who directs the international economics program at the Carnegie Endowment for International Peace, said the system of flexible exchange rates that had existed since 1971 was at risk of breaking down.
“At the heart of the problem is the unwillingness of the big players — and here I would single out the United States, Germany and China — to deal with their own domestic problem,” Mr. Dadush said.
He said that the United States needed to stimulate demand in the short run but curb its addiction to borrowing in the long run; that China needs to reduce its reliance on exports and allow its consumers to buy more and save less; and that Germany needs to wean itself off the fixation on frugality and productivity that helped it through reunification in 1990 but that now poses a threat to the economic integration of Europe.
Mr. Dadush’s view is the mainstream one, and one shared by the United States. As Mr. Obama put it: “Just as the United States must change, so too must those economies that have previously relied on exports to offset weaknesses in their own demand.”
And yet the road to getting there goes through what seem to be insurmountable political hurdles.
“China wants to preserve export-led growth strategy and on the other hand the United States needs the impetus of a weaker dollar,” said Arvind Subramanian, an economist at the Peterson Institute for International Economics and the Center for Global Development. “These are fundamentally incompatible objectives. Each side has become so powerful geopolitically that neither side has the levers to persuade the other change.”
China does not seem persuaded that rebalancing is in its short-term interests, Mr. Subramanian said, adding, “Until that plays itself out, I don’t see any quick, easy or frictionless way forward.”
Mr. Subramanian said he was also skeptical about the effectiveness of American appeals to China’s perceived self-interest.
“It’s always awkward for outsiders to tell China what’s in its self-interest,” he said. “This is a country that has posted the longest, highest rates of economic growth in history. Outside advice is simply not credible, even if it’s economically true.”