Saturday, November 13, 2010

G-20 summit fears loom over trade war

Associated Press South Korean President Lee Myung-bak greets President Barack Obama on Thursday at the G-20 summit in Seoul, South Korea.

SEOUL, South Korea - Leaders of major economies faced the urgent task at their summit today of resolving currency disputes that have raised fears of a global trade war.

A dispute over whether China and the United States are manipulating their currencies is threatening to resurrect protectionist policies like those blamed for worsening the Great Depression. The biggest fear is that trade barriers will send the global economy back into recession.

Hopes had been high that the Group of 20, which includes wealthy nations such as Germany and the U.S. and rising giants such as China, could be a forum to forge a lasting global economic recovery. Yet so far, G-20 countries haven't agreed on an agenda, let alone solutions to the problems that divide them.

G-20 leaders, who began their meeting today in Seoul, were expected to issue a communique detailing results of the summit later in the day.

The delegates have clashed in particular over the value of their currencies.

Some countries, such as the United States, want China to let the value of its currency, the yuan, rise. That would make Chinese exports costlier abroad and make U.S. imports cheaper for the Chinese to buy.

It would shrink the U.S. trade deficit with China, which is on track this year to match its 2008 record of $268 billion.

But other countries are irate over the Federal Reserve's plans to pump $600 billion into the sluggish American economy. They see that move as a reckless and selfish scheme to flood markets with dollars, driving down the value of the U.S. currency and giving American exporters an advantage.

Richard Portes, president of the Center for Economic Policy Research in London, said the dim prospect for a substantive agreement "is very dangerous for the world economy."

Portes said he fears "the possibility that currency wars and global imbalances might lead to severe trade protectionism over the next year or so."

For now, the G-20 countries are expected to agree on non-controversial issues such as an anti-corruption initiative and the need for oversight by the International Monetary Fund.

But they're finding no common ground on the most vexing problem: how to address a global economy that has long been nourished by huge U.S. trade deficits with China, Germany and Japan.

Exports to the United States powered those countries' economies for years. But they've also produced enormous trade gaps for the U.S. because Americans consume far more in foreign goods and services than they sell abroad.

President Barack Obama told fellow leaders that the U.S. cannot just keep borrowing lavishly and sending its money overseas.

It needs other countries to buy more exports from the United States and elsewhere so Americans can afford to buy other countries' goods, he said.

"The most important thing that 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," Obama said at a news conference in Seoul.

But Brazil's president, Luiz Inacio Lula da Silva, warned that the world would go "bankrupt" if rich countries reduced their consumption and tried to export their way to prosperity.

"There would be no one to buy," he told reporters.

A failure to agree on currency and trade in Seoul could intensify countries' efforts to rig their currencies to gain an economic advantage.

A full-blown trade war could lead countries to erect punitive barriers to imports - a replay of what happened in the 1930s.

A law the United States passed in 1930 that raised tariffs on imports is widely thought to have deepened the Great Depression by stifling trade.

"(Congress) wants to see some blood . . . wants a bit of a spat with China on currency wars," said Gregory Chin, a senior fellow at the Center for International Governance Innovation in Canada.

The House recently voted to punish China for keeping its currency artificially low.

Government ministers and senior G-20 officials have tried to draft a substantive joint statement, summit spokesman Kim Yoon-kyung said.

by Jean H. Lee and Paul Wiseman Associated Press Nov. 12, 2010 12:00 AM

G-20 summit fears loom over trade war

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