POREG VIEW: As the curtains came down on G-20 summit in Seoul, a debate has begun in right earnest whether the clout of United States has begun to diminish on the world stage. The trigger for the debate was provided by President Obama’s failure to push his agenda for a robust plan for job growth at home through the mechanism of global recovery.
While the UK was lukewarm in its support, China and Germany have stoutly opposed his proposals to quantify limits on current-account surpluses and deficits. In fact, China’s case was that speculative capital flows towards emerging markets and weakening of the greenback were result of the American fiscal policy, which is paying lip service to other economies. It has bluntly turned down the demand to revalue the Yuan vis-à-vis the dollar. The Yuan has risen around three percent against the dollar since June.
In the prevailing global economic milieu, an element of protectionism is unavoidable but the question is at what level protectionism could endanger the global economic recovery. There was no unanimity in the closed door discussions, which were reportedly marked by acrimony.
Hence, the decision is to remit the issue of an imbalances assessment to the next summit, and to move ‘toward more market-determined exchange-rate systems’ and avoid ‘competitive devaluation of currencies’. June 2011 is the deadline for examining global trade imbalances
If the US has lost out in the G-20 sweepstakes, did China gain?
If the wording in the communiqué is any indicator, China appears to have its concerns over volatility reflected but managed to keep out the worries on account of trade surpluses and currency values.
A careful analysis of the public spat between Washington and Beijing, however, shows that both have developed a working equation of sorts, each side factoring in other’s strengths.
For instance, the US has certain leverages in any currency war. Since the US remains the most sought after export destination, China is allowing the Yuan appreciation at a rate that doesn’t send alarm bells ringing.
Not surprisingly, therefore, President Obama ended his G-20 summit interactions with a blunt message to China. The issue of Chinese currency, the renminbi, he said, is an irritant not just to the United States, but is an irritant to a lot of China’s trading partners and those who are competing with China to sell goods around the world.
