President Barack Obama took his ongoing push against Chinese currency undervaluation, which imbalances U.S.-Chinese trade and contributes to the deeply problematic U.S. trade deficit, to this week's G20 economic summit in South Korea. But he found only mixed success; the resulting G20 resolution does not include his requested language pledging against allowing "competitive undervaluation" of currencies. Here's what happened, what it means, and why it matters. But before we get to the analysis, here's a cartoon music video that pretty elegantly explains, in a surprisingly entertaining rap, both sides of the U.S.-China currency dispute.
- G20 Wary of U.S. as Well as Chinese Currency Policy Despite U.S. pressure to call attention to Chinese behavior, the world economies represented by G20 have been especially suspicious of the U.S., putting Obama on the defensive. The Washington Post's Howard Schneider and Scott Wilson write, "Obama said a recent Federal Reserve decision to add more money to the financial system is distinct from the 'competitive devaluation' that all the countries foreswore in the G-20 agreement. China has used such devaluation, U.S. officials argue, to advance its exports. The Fed decision, Obama said, 'was not one designed to have an impact on the currency, on the dollar. It was designed to grow the economy.' Obama said. "
- World Must Push China to Take Responsibility The Guardian's George Magnus writes, "The US and China, then, are pursuing mutually inconsistent economic policies reflecting diametrically opposite circumstances, but centred around a common exchange rate, so the yuan moves little against the US dollar. On this basis, there never will be a meaningful agreement by G20 nations to resolve the underlying problem of imbalances in global trade or local economies.Ultimately the G20 must recognise that the US has already been dealt its hand by the financial crisis and that China has both choices and flexibility. This would refocus attention where it should be – namely, on the wide-ranging economic and political reforms that China has to pursue."
- Obama: No Home Run, but 'Important Single' Foreign Policy's Joshua Keating writes, "The final agreement commits G20 nations to curb deficits and move toward more flexible exchange rates. ... Obama said the agreement showed that the G-20 countries are in 'broad agreement on the way forward.' Acknowledging the watered-down nature of the final proposal, he said, 'Instead of hitting home runs sometimes we're gonna hit singles. But they're really important singles.' It has been a tough visit for Obama, who also failed to secure a free trade agreement with South Korea on Thursday."
- Could Currency Dispute Escalate? The Economist notes the concerns. "Behind today’s hand-wringing over currency wars is the fear that it’s one small step from currency intervention and capital controls to traditional, noxious protectionism: tariffs, quotas, subsidies, etc." They include quotes from a Cato analyst arguing that such protectionism could be imminent. However, The Economist is doubtful. "But is it true? Does monetary protectionism breed traditional protectionism? I could argue the opposite. If monetary protectionism softens the pain felt by the trade sector, it weakens demands for the traditional variety."
- Global Economics Increasingly About U.S-China The Washington Post's Howard Schneider and Scott Wilson take a step back. "The [G20] 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."