The 'G-2,' U.S. and China, will be the center of the G-20 debates in Seoul
Wednesday, November 10, 2010; 8:44 PM
SEOUL - A pending agreement among world leaders in Seoul will mark what U.S. officials hope is a turning point in efforts to better balance trade and capital flows, and in particular come to terms with China over core principles of global economic policy.
The accord is not expected to go as far as U.S. officials had hoped in defining the specific commitments countries will make to keep their surpluses or deficits with the rest of the world from getting out of line. That technical work will be deferred - a make-or-break discussion that will determine how meaningful the broader agreement becomes in practice.
But U.S. officials say they will regard it as a success if they leave the Group of 20 summit with an endorsement of the principles and will consider it a victory if China signs on.
"It's not going to happen all at once," President Obama said in Indonesia on Tuesday as he prepared for the summit.
The accord reflects a core dynamic at the meeting: There may be many seats at the table, but the central debate revolves around the "G-2" - the United States and China - and the struggle between those two top economies.
Both sides kept the relationship front and center as the sessions approached. Chinese officials pledged a "candid" conversation about U.S. economic leadership at the summit. And Obama released a letter Wednesday defending recent U.S. decisions and saying China's exchange-rate policy is hurting the economic recovery.
"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 wrote.
Obama administration officials are aiming to broaden their criticism of Beijing - including concerns about practices that boost China's exports by keeping its currency relatively weak compared with the dollar - into a discussion involving other countries.
With the accord, they have succeeded in part.
But it remains unclear whether the meeting will make progress on the top U.S. priority of addressing how China manages its currency, the yuan, and reshapes its economy to generate more demand for imported goods and services. Underscoring China's outsize emphasis on exports, the country's monthly trade surplus jumped to $27 billion in October, more than economic analysts had expected.
With Obama and Chinese President Hu Jintao scheduled to meet Thursday, the two sides have been saying they concur on general concepts, including their dependence on each other's economic success. Officials from both sides have said they agree that China should do more to develop its domestic markets so its consumers can spend more, and that the United States should borrow less.
But frustration has grown on both sides over how to translate the principles into action.