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At G-20, Loose Goals Set for Trade Imbalances; U.S. Prods China on Currency

November 12, 2010 at 7:40 PM EDT
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World leaders at the G-20 summit in South Korea set broad guidelines for the global economy but left out details on how key issues will be resolved. Jeffrey Brown speaks with Sewell Chan of the New York Times, who covered the Seoul summit.
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JEFFREY BROWN: The summit of the world’s 20 leading economies ended today in South Korea. It closed with general statements on key issues, but it left specific actions for another day.

President Obama arrived in Japan this evening, hours after the G20 gathering concluded in Seoul. At a news conference before leaving, he acknowledged the lack of policy victories, but suggested that expectations are sometimes too high.

U.S. PRESIDENT BARACK OBAMA: We should not anticipate that every time countries come together that we are doing some revolutionary thing. Instead of hitting home runs, sometimes we’re going to hit singles. But they’re really important singles.

JEFFREY BROWN: For example, an agreement to set guidelines for measuring trade imbalances. The president had wanted to go further, in light of the huge U.S. trade deficit with China. But he claimed progress just the same.

BARACK OBAMA: Here at Seoul, we agreed that growth must be balanced. Countries with large deficits must work to reduce them. Likewise, countries with large surpluses must shift away from unhealthy dependence on exports and take steps to boost domestic demand.

JEFFREY BROWN: Coming into the summit, President Obama also hoped to push China to let the value of its currency rise. U.S. officials argue it’s kept artificially low to make Chinese goods cheaper.

BARACK OBAMA: It is undervalued. And China spends enormous amounts of money intervening in the market to keep it undervalued. It means some adjustments for China. And so we’re — we understand that this is not solved overnight. But it needs to be dealt with. And I’m confident that it can be.

JEFFREY BROWN: But the global leaders refused to make a strong statement on the currency dispute. In fact, the president faced criticism that the Federal Reserve is engaging in currency manipulation by injecting billions of dollars into the U.S. economy.

BARACK OBAMA: From everything I can see, this decision was not one designed to have an impact on the currency, on the dollar. It was designed to grow the economy.

JEFFREY BROWN: The president, likewise, argued the U.S. will get a free trade agreement that opens South Korean markets to American beef and autos. That agreement eluded him on this trip.

BARACK OBAMA: I think we can get a win-win, but it was important to take the extra time so that I am assured that it is a win for American workers and American companies as well as for Korean workers and Korean companies, because I’m the one who’s going to have to go to Congress and sell it.

JEFFREY BROWN: Overall, the summit left lingering questions about American influence and President Obama’s own overseas clout. But he was quick to dismiss any doubts.

BARACK OBAMA: It wasn’t any easier to talk about currency when I had just been elected and my poll numbers were at 65 percent than it is now. It was hard then and it’s hard now, because this involves the interests of countries and not all of these are going to be resolved easily. And it’s not just a function of personal charm. It’s a function of countries’ interests and seeing if we can work through to align them.

JEFFREY BROWN: The president will return home after a regional economic summit in Japan. He will face a lame-duck Congress next week, fresh off the bruising midterm election and having found little relief overseas.

Sewell Chan of The New York Times was in Seoul covering the summit. I spoke to him early today. Sewell Chan, welcome.

SEWELL CHAN, The New York Times: Hi, Jeff.

JEFFREY BROWN: So, an agreement, but one without a lot of detail or teeth. Fill in the picture, first, on what they did agree to.

SEWELL CHAN: They — the leaders here agreed to refrain from a trade war. They agreed to move toward market-based exchange rates, which the U.S. views as a very positive development. And they agreed that the — on the broad goal of reducing the trade and other imbalances that could threaten the global recovery.

JEFFREY BROWN: And what had President Obama wanted?

SEWELL CHAN: The Obama administration had initially proposed a specific target or limit on the surplus or deficit that any individual country can run.

China and Germany are very large surplus countries. They export a lot, and they don’t spend a lot. The U.S. and the U.K. are very big deficit countries that have tended to borrow and consume a lot, and not save enough.

And the idea behind this discussion on imbalances is that, if they — if there’s a more equitable system, the likelihood of these dangerous buildups of capital and other economic distortions is reduced, and, thereby, the chances for another financial disaster like the one we had two years ago will be lessened.

JEFFREY BROWN: One sticking point, clearly, was China and its currency, which the U.S. and others say is kept artificially low in value. And the president used some pretty strong language about China at this meeting, right?

SEWELL CHAN: Absolutely. President Obama said that the U.S. would be monitoring the Chinese currency very closely. He called for China to play a greater responsibility in — consistent with its greater economic power and its greater development.

And he expressed hope that, when the Chinese president, Hu Jintao, visits Washington in January, that that could mark another step forward in a relationship that, frankly, has been pretty tense in the last few months.

JEFFREY BROWN: But China wasn’t giving in at all, it seems. Was there a feeling there of it flexing its muscles?

SEWELL CHAN: Yes, there’s broad debate on that.

I mean, the Chinese, on the one hand, definitely would have resisted and did resist any specific target or limit on current accounts. They — particularly — the Chinese in particular resisted any appeal for them to quickly move or to set what they consider too premature a timetable on appreciating the currency.

But they did sign onto the broad goal of reducing these imbalances and the goal of getting exchange rates to match market fundamentals, at least in principle. So, the question is really when and how soon the Chinese will allow their currency to move.

JEFFREY BROWN: Another issue there was Germany and others not happy with the recent action by Federal Reserve to stimulate the U.S. economy. Tell us how that played out at the meeting.

SEWELL CHAN: It’s fair to say that the United States got quite an earful here in Seoul from other countries that were not happy with the Fed. In fact, the Fed’s decision to inject $600 billion into the American economy kind of came at a pretty bad time.

It came right after the midterm elections, which were fairly disappointing for President Obama, and right before this G20 summit, where the U.S. was trying to get other countries to cooperate.

That said, the American officials tried to put the best face on it. They said the Fed was trying to help the American economy, and that that assistance is really crucial to helping the global recovery. And they also said the Fed wasn’t trying to weaken the dollar, even though, in reality, the Fed’s action does have somewhat of that effect.

JEFFREY BROWN: But Germany and others weren’t buying it, right?

SEWELL CHAN: They weren’t buying it, but, also, frankly, for strategic reasons, it helps them to get some leverage in negotiations, by, you know, creating a little bit of noise and expressing some unhappiness with the American actions.

I heard from sources that, behind closed doors, the Fed’s actions didn’t come up all that much, but they made for good theater.

JEFFREY BROWN: There was also a bilateral negotiation here involving a hoped-for trade deal with South Korea. What did the U.S. want, and why did it fall short?

SEWELL CHAN: Sure. The U.S. and Korea negotiated a trade agreement in 2007 during the Bush administration, but it’s pretty much languished in Congress. And the key sticking points are non-tariff barriers, so barriers other than tariffs, to American exports of autos and beef to Korea.

And those issues are very technical, very thorny. There are a lot of constituents in the United States, like labor unions and Ford Motor Company, that oppose the agreement in its current form. So, President Obama basically has said that he wanted to wait and continue trying to work toward an agreement that would really work, rather than, you know, make concessions that could possibly lead to an agreement that wouldn’t be approved by Congress.

In some respects, it was a disappointment, but both sides are saying that they are still hoping that the deal can be finalized eventually.

JEFFREY BROWN: Finally, let me ask a sort of atmospherics question. There was the big midterm election loss of President Obama’s party. And there’s been a lot of talk about whether that weakened his ability to get his way in Seoul.

How did it feel there, in watching the leaders and delegations interact?

SEWELL CHAN: I don’t think anyone would say that the Americans left here with a rousing victory. These kind of summit meetings aren’t almost designed — are almost kind of not designed for that kind of outcome.

But, to the extent that the Americans succeeded, it was in their ability to still help shape the agenda for what the world’s nations talk about. The Americans clearly put this issue of imbalances front and center, and they got the other countries to make at least a conceptual agreement, an agreement in principle, on reducing those imbalances, even though that many of the specifics were punted over to next year.

JEFFREY BROWN: Sewell Chan of The New York Times, talking to us from Seoul, Korea, thanks so much for joining us.

SEWELL CHAN: Thank you.