U.S. President Barack Obama’s whirlwind tour through Asia reached a crescendo at the Group of 20 world leaders in Seoul on Nov. 11-12 at which he exercised his best oratorical skills to explain away an unmistakable sense of disappointment.
“Instead of hitting home runs,” he told journalists, “we’re hitting singles.” The baseball analogy might have appealed to Koreans, Japanese and Taiwanese, but it was hard to see all that much progress in a final declaration that fell far short of the key goal of redressing currency imbalances.
The frustrations were just as evident the next day in Yokohama, where Obama attended the summit of Pacific Rim leaders of APEC, the Asia-Pacific Economic cooperation group. By the time the meeting ended, skepticism if not cynicism had become the motif of the mission. The final statement of the APEC group was a masterpiece of obfuscation in which the group expressed its commitment “to maintaining open markets and fighting protectionism.”
Then there was China’s President Hu Jintao, as skilled as anyone in parrying demands for China to place a realistic value on its currency and stop dumping cheap goods on world markets, notably the United States. Unlike Obama, who specifically cited China’s habit of depreciating the value of its currency by large infusions of funds, Hu in Yokohama said simply that the danger of protection was rising “notably.” He did not have to name the United States though lesser officials have not hesitated to do so. And, in a bow to all the talk about global imbalances, a code term for inequitable exchange rates, Hu said that the recovery from economic crisis had not been “firmly established.” Nor, he said, was it “balanced.”
By the time Obama and Hu got to confront one another across the table yet again at APEC, the day after the windup of the Group of 20 in Seoul, Obama had already lost the major battles of the whole trip. First there was the disappointment of the failure to come to terms on a Korea-U.S. Free Trade Agreement that was completed in the waning months of the presidency of George W. Bush but still needs ratification by Congress. The U.S. special trade representative Ron Kirk said after a long lunch discussion between Obama and South Korea’s President Lee Myung-bak that U.S. officials still were not happy about differences over the huge disparity in market access for the American motor vehicle industry.
South Korean experts were shocked, as were many foreign observers. “It’s a big disappointment we didn’t get the FTA,” said Jang Ha-sung, dean of business at Korea University. “Korea has done much for its own share.” Jang said he had “no idea” on what issues the deal was stuck, and “they’re not revealing” the reasons, but U.S. manufacturers cite a long list of standards, requirements and taxes that discourage U.S. imports. The devil is definitely in the details when it comes to the results of a two-day talkfest among some of the world’s most powerful leaders.
Lurking within the fine print of the summit leaders’ declaration issued by the Group of 20 was the sense that no one is committed to doing anything about the imbalances that are the primary concern of the United States and others suffering from huge deficits at the hands of China and other nations with huge trade surpluses. All the leaders, ranging from Obama to Hu Jintao could agree that “uneven growth and widening imbalances are fueling the temptation to diverge from global solutions into uncoordinated action.” And they all agreed that “uncoordinated policy actions will only lead to worse outcomes for all.”
The problem, though, was how to get beyond that platitude and on to the action that would seem appropriate in what some, notably the Korean host, would like to go down in history as the Seoul Action Plan. The leaders seemed to have missed that goal as they went on to reveal a plan that included a “commitment” that was obviously not a commitment at all. They would, said their statement, undertake macroeconomic policies needed to ensure ongoing recovery and sustainable growth and enhance the stability of financial markets. Nor would the Chinese, the Germans and others object to the equally vague resolve to move toward “more market-determined exchange rate systems” while “enhancing exchange rate flexibility to reflect underlying economic fundamentals and refraining from competitive devaluation of currencies.”
Obama was considerably more specific in singling out China while remaining as diplomatic as possible under the circumstances. “We welcome China’s rise,” surely “good for the world and good for America,” he said. “It’s good to get people out of poverty.” There was, however, one problem. “The issue of the renminbi is an irritant not just to the United States but to a lot of trading nations.” China, he observed with surprising frankness, “spends enormous amounts of money interfering in the market to keep it undervalued.”
That remark seemed almost like a warning of the danger of protectionist measures by the American Congress if the Chinese fail to increase the value of their currency. Obama shrugged off the view of the Chinese and Germans, shared by many, that the United States was depreciating its own currency, instigating volatility on world financial markets, by a scheme for the U.S. Federal Reserve to buy $600 billion in Treasury bonds in order to overcome enormous deficits. “This decision was not designed to have an impact on the dollar,” he said. “It was designed to grow the economy.”
There was no doubt Obama’s one-on-one meetings with Hu and Germany’s Chancellor Angela Merkel had been superficially cordial, but there was also no doubt that he had not convinced them to do much about reducing their surpluses. No one here seemed to want to bring up the American suggestion for keeping their trade surpluses within four percent of current accounts surpluses – an idea that was shot down at the meeting of finance ministers in October.
If currency imbalances were the most urgent topic facing the Group of 20, the issue of the Korea-U.S. free trade agreement was equally important from the American viewpoint. In a sense the FTA issues were a microcosm of the greater problems of overall imbalances in trade. Here too the devil is definitely in the details that create the overwhelming imbalance between Korean motor vehicle exports to the United States and U.S. exports to Korea. “A lot of countries including South Korea depend on exports,” said Obama. “They want to see us grow” – that is, to be able to spend ever more on imports from Korea and elsewhere. He was not, however, “interested in trade agreements just for the sake of trade agreements.”
Somehow, Obama believed, there must be a way “to find a sweet spot that works for both Korea and the United States.” Both he and Lee agreed that negotiators would work out “technical issues” besetting final approval of the FTA. Obama, who had opposed the FTA when he was a senator from Illinois in search of the presidential nomination in 2007, reminded Koreans of opposition by both workers and manufacturers in the United States to a deal that many fear would encourage an ever rising flood of Korean cars and trucks – and endanger the whole U.S. industry.“It’s important to take the extra time” on negotiations, he said. “I’m assured it’s a win-win for American workers and Korean workers.” But he added, “there are a lot of suspicions” since “some of these deals may not be good for America.”
The failure to come to terms on FTA was a bitter disappointment to some of the prime advocates, including the United States Chamber of Commerce, which remains convinced the agreement will encourage a major increase in two-way trade. The fear is that the FTA may still not get through a recalcitrant Congress. Globally, though, the greater fear is the international currency wars will intensify while emerging-market countries line up behind China and others in criticizing U.S. financial policy and pressure.
That criticism was implicit in the leaders’ statement that observed that “advanced economies” would be “vigilant against excess volatility and disorderly movements in exchange rates” – and “help mitigate the risk of excessive volatility in capital flows facing some emerging countries.” That was one way of holding the U.S. responsible for some of the world’s financial ills while removing some of the blame from China and others.
Obama, however, implied that protectionism was still a risk. Countries with large surpluses must shift away from depending on exports,” he said. “No nation must assume the road to prosperity depends on exports to the U.S.” Bottom line: “We will continue to watch the appreciation of Chinese currency.” At Korea University, however, Dean Jang sympathized with the Chinese view. The dollar, he noted, is going down in value as a result of the Federal Reserve Bank’s decision to buy $600 billion in Treasury bonds. The U.S. view, he said, might be a problem.
Lee Chang-choon, a former Korean ambassador to a number of countries, was more critical. “Obama has been losing clout” since the congressional elections in which the Republicans won an overwhelming majority in the House of Representatives. “He is counting down to his last days.” Lee laughed at plans by President Lee to ballyhoo the summit as a great event in modern Korean history. “The Lee government is making a continued press campaign,” he said. “They are so eager to celebrate the success of G20. We are living in a very strange period.”
Chosun Ilbo, Korea’s biggest newspaper, adopted a skeptical view as well. “Concrete agreements have been put off,” said the paper. “For Korea as the host, the results leave something to be desired.” The paper, in an editorial, questioned G20’s real future: “It remains to be seen whether the G20 will truly become the world’s top economic decision-making body because consensus about the economic crisis and a sense of urgency among G20 countries are diminishing.”
I f nothing else, however, the APEC leaders did bring new sets of initials to the fore. Look out for FTAAP, Free Trade Area of the Asia Pacific. The idea, as APEC potentates agreed, was one vast “free trade area” that will the eastern with the western rims of the Pacific. “Now is the time for APEC to translate FTAAP from an aspiration to a more concrete vision,” they decided. “We instruct APEC to take concrete steps toward realization of an FTAAP.” It might be far too early to expect that one to get very far, but leaders privately agreed that the Doha round of World Trade Organization negotiations is dead. As an Australian banker on the APEC Business Advisory Council remarked, “We’ve moved past Doha”—the scheme for breaking down trade barriers that trade gurus meeting at Doha nine years ago had hoped to turn into reality.
But what’s next? Here’s another set of initials mooted at Yokohama – TPP for Trans-Pacific partnership. Might TPP a substitute for the Korea-U.S. Free Trade Agreement – and perhaps a device for curing global imbalances? Optimism was not rife, but be prepared to hear those initials over the next few years of “currency wars” that continue to rage after all the talking is done.