Chaos at G20 Economic Summit in Seoul

by John M. Curtis
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Copyright November 11, 2010
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          Feeling the heat from the global economic downturn, both poor and affluent countries couldn’t agree on a coherent strategy to fix the world economy.  Poor countries with cheap labor markets want to expand exports, while rich countries like the U.S. would like to do the same.  Federal Reserve Chairman Ben S. Bernanke rankled European, Asian and South American finance ministers agreeing to purchase $600 billion in U.S. treasuries.  Prevailing wisdom hints that printing that much cash weakens the U.S. dollar, making exports more attractive in foreign markets.  Foreign competitors want to keep the U.S. as the world’s biggest consumer marketplace, not compete in foreign exporting markets.  Two years ago in Washington, the G20 agreed on concrete steps to end the global financial meltdown, including reforming financial systems and rejecting trade protectionist policies.

            President Barack Obama walks a dangerous tightrope hoping to placate world leaders and, at the same time, do what’s right in concert with the Fed to grow the U.S. economy.  U.S. over-reliance on its trade imbalance, where foreign exports far outpace their U.S. counterparts, gives countries like China, India and Brazil a distinct advantage in foreign trade.  U.S. Treasury officials, led by Secretary Tim Geithner, have had little effect on China to float the yuan to attain more parity with U.S. and European exchange rates.  China’s communist government wants no part of a rising currency, making other foreign manufacturers more competitive.  “This is very dangerous for the world economy,” said Richard Portes, president of London-based Centre for Economic Policy Research.”  Portes sees real risk to the global economy from U.S. attempts to devalue its currency.

            Obama must send a loud message to foreign manufacturers at the G20 that in order to preserve the U.S. capacity as the world’s biggest consumer nation, his first priority is fixing the economy.  Exporting nations don’t fair well in the U.S. when the nation suffers from near-record high unemployment.  While there are many parts to economic slowdowns, the first step is stabilizing the U.S. stock market.  As long as global panics hit Wall Street, short-selling unregulated hedge and private equity funds cover their losses.  If the Fed and U.S. Treasury can prevail on Wall Street, especially on hedge and private equity funds, to curtail short-selling, fuel long-term stock market growth and eventually reduce the nation’s unemployment rate.  With more Americans working, it’s going to help foreign exporters seeking to sell Americans more cheap imported goods.

             Chinese President Hu Jintao tried to reassure Barack that he would do more to allow the yuan to rise in value, helping U.S. and other foreign exports.  Bernanke’s latest move to repurchase billions worth of U.S. treasures was, in part, a reaction to China’s refusal to re-value its currency.  China doesn’t allow its currency to float on currency exchanges, something that would increase its value.  If it reached parity with the dollar, the U.S. would reduce its trade deficit, relying heavily on cheap imported goods.  Floating the yuan would also force foreign companies and U.S.-based manufacturers to produce goods in the U.S.  Since China’s rise as a leading manufacturing power, the U.S. has lost millions of manufacturing jobs.  Obama’s message to the G20 should forcefully encourage foreign manufactures, especially of popular electronic consumer goods, to set up shop in the U.S.

            Trade wars don’t end well with foreign governments slapping on tariffs to discourage imported goods.  Intelligent foreign companies set up manufacturing shops in the U.S., creating American jobs and improving economic conditions to sell more goods.  Whatever China decides to do with its currency, Obama must strongly encourage foreign manufacturers, from toothbrushes to big screen TVs, to set up shop in the U.S.  Outsourcing has been a shortsighted strategy, building instant gratification for mass merchandisers but robbing American workers of needed jobs to fuel the U.S. consumer economy.  Obama’s economic team must push, in the strongest possible way, foreign and U.S. companies to manufacturer in the U.S. Over time, it will reduce the trade imbalance and stimulate jobs growth.  Success stories abound for European, Japanese and Korean carmakers manufacturing in the U.S.

            Despite the gloomy atmosphere in Seoul, Obama must press ahead to encourage foreign companies to manufacture in the U.S. or face possible sanctions.  He must make abundantly clear that the world economy is dependent on U.S. consumers  No American president takes the oath of office to preside over the demise of the U.S. economy.  Whatever the Fed does to restore economic vitality in the U.S., the G20 should lend its full support.  “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,” said Obama at a Seoul press conference.  Instead of world powers worrying about speculative currency markets, they should support whatever effort grows the U.S. economy.  More U.S. jobs and prosperity only multiply the effect overseas.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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