As Obama arrives in Seoul, Fed decision clouds G-20 debate
Wednesday, November 10, 2010; 11:22 AM
SEOUL - President Obama urged other world leaders Wednesday to reduce their reliance on exports to the United States to drive their economic growth, stressing a need to resolve global imbalances such as China's huge trade surplus.
In a letter released shortly after he arrived in the South Korean capital for a Group of 20 summit meeting, Obama defended his administration's actions to boost the U.S. economy and argued that strong growth and job creation would be the most important U.S. contribution to global economic recovery.
"The United States will do its part to restore strong growth, reduce economic imbalances and calm markets," Obama wrote. "A strong recovery that creates jobs, income and spending is the most important contribution the United States can make to the global recovery." He said the strength of the U.S. dollar "ultimately rests on the fundamental strength of the U.S. economy."
The letter implicitly defended the Federal Reserve's move last week to pump billions of dollars into the U.S. economy, which provoked an international backlash that threatened to undercut Obama's goals for the summit. The decision to spend another $600 billion buying government bonds triggered criticism that the policy weakens the dollar, helping U.S. exports while making imports from other nations more expensive.
"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," Obama wrote in a veiled reference to nations such as China.
"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," he said. "When all nations do their part - emerging no less than advanced, surplus no less than deficit - we all benefit from higher growth."
Heading into the G-20 summit, U.S. officials have pushed for agreement on detailed guidelines for curbing the trade surpluses of export giants like China and Germany and averting a currency war among countries looking for a trade advantage.
World leaders share Obama's overall aims of bringing trade flows into better balance and curtailing recent clashes over currency values. U.S. officials had hoped, in particular, that the summit would prompt China to allow its currency, the yuan, to rise in value on world markets, leading the Chinese to import more and export less.
But the effort to reach an international consensus is running into last-minute difficulties because of what critics say is a unilateral move by the Fed to boost the flagging U.S. economy.
The Fed's decision, in essence, to print $600 billion and pump it into the economy through Treasury bond purchases has drawn fire from foreign leaders, notably German Finance Minister Wolfgang Schaeuble, who say it amounts to currency manipulation. The action seeks to lift the U.S. economy in several ways, including by lowering interest rates, boosting the stock market and weakening the dollar, which would make U.S. exports more attractive.
Coming into the meeting, hopes have dimmed that the G-20 will go beyond general principles on trade and currency and add what U.S. officials have characterized as "meat on the bones."