Reference no: EM132656951

Title: At G-20, Loose Goals Set For Trade Imbalances, U.S. Prods China

On Currency

Abstract: This video explores the issues on the agenda at the recent G-20 meeting and the effort to set guidelines for the global economy.

Notes: The recent G-20 meeting in South Korea ended without any real resolutions to the problems that have plagued the global economy for the last few years. The United States had hoped to forge a free trade deal with South Korea that would open South Korea's market to U.S. beef and automobile exports. In addition, U.S. officials had hoped to come to some agreement over trade imbalances, especially the country's enormous trade deficit with China, and get China to agree to allow its currency to appreciate. While President Obama expressed frustration at the lack of progress, he also noted that the meeting was not entirely unsuccessful pointing out that some broad guidelines had been reached that could lead to more specific agreements down the road.

Obama had hoped to get countries to agree to limit the size of trade deficit or surplus any country could run. The motivation for current account limits is to reduce the potential for dangerously large build-ups of capital that could result in a financial crisis similar to the one that occurred in 2008. China, which runs a large trade surplus with the United States, was firmly against such limits, but did broadly agree that trade imbalances should be brought under control. For now however, the country did not agree to any specific details or timetables. The United States had also hoped to get South Korea to eliminate the non-tariff barriers that are making it difficult for U.S. companies to export beef and automobiles. The two countries had negotiated an agreement in 2007 under President Bush, and Obama had hoped to push the agreement forward, but was unable to get Korea to go along with the reductions in tariff and nontariff barriers to trade it wanted.

For the moment, Obama has to be content with reassurances that the G-20 countries will not engage in a trade war, that there will be more discussion on reducing trade imbalances at some point in the future, and that there will be a move toward exchange rates that are driven by market forces rather than government intervention. In all, a far cry from the specific agreements the President had hoped to gain from the summit. Indeed, while many countries support the U.S. position that China needs to allow its currency to appreciate, they also criticized the United States for its recent decision to inject billions of dollars into the U.S. economy. Obama defended the move arguing that it was designed not to bring the value of the dollar down, and by doing so giving U.S. exporters the same type of competitive advantage as Chinese exporters, but instead to help grow the economy. Despite the lack of progress on achieving his agenda, Obama did not walk away from the meeting empty handed however. According to Sewell Chan of the New York Times, the United States still controlled the discussions and made its issues the central topics of discussion.

Discussion Questions:

1. Explain the relationship between the value of a currency and the trade balance of a country. What is a trade deficit? What is a trade surplus?

2. How does a weak currency help China's exporters? Why did President Obama make the value of China's currency a central issue at the G-20 meeting?

3. Why is the United States pushing for limits on trade imbalances? What would such limits imply for countries that run trade surpluses? How would limits on trade imbalances affect countries with trade deficits?

4. The United States came under fire at the G-20 meeting for its decision to inject billions of dollars into the economy. Critics believe this is an effort to lower the value of the U.S. dollar. Do you agree? Why or why not? How could a weaker dollar help the United States?