Crossroads
Summit comes at awkward time The G-20 economic summit in Pittsburgh today and Friday comes at an awkward time for the United States. Next week the federal government’s fiscal year comes to an end, and when it does Uncle Sam will have run a budget deficit of $1.58 trillion, more than tripling the previous record deficit of $455 billion.
That deficit makes our trading partners nervous, especially China, which holds $800 billion of U.S. debt thanks to its booming trade surplus. It also makes for a weaker dollar, still the international reserve currency. Despite Russia and a few other nations muttering about creating a new reserve currency to replace the dollar, most nations believe the dollar has performed satisfactorily, but they would like to see it strengthen and stabilize.
President Barack Obama will promise to boost the domestic savings rate, reduce demand for imports and rein in federal spending. He will explain that the eye-popping fiscal 2009 deficit is a one-shot deal because of the vast amounts spent to bail out the banks and reignite the economy.
China fears that the others of the 20 leading industrialized nations will gang up on it because of its huge trade surpluses, driven by Beijing’s mercantilist policies. China will face demands – politely put, of course – that it revalue its currency upward, throw open its markets to foreign competitors and spur domestic demand for consumer goods.
The Chinese would do well to listen. In times of recession, protectionism becomes less and less a dirty word. And Beijing may have noticed that Obama’s proposed anti-dumping tariffs of up to 35 percent on imported Chinese tires did not stir up near the controversy as President George W. Bush’s brief experiment with anti-dumping tariffs on imported steel.
The U.S. will propose attacking these problems through a Framework for Sustainable Growth, a package of guidelines for bringing nations with trade surpluses and those with trade deficits more into balance. The price of general agreement on this is likely giving developing nations a greater say in international lending institutions like the International Monetary Fund.
The big problem is not agreement on the framework. The G-20 leaders agree that orderly and sustainable international economic growth is a good thing. The problem is some means of enforcing the guidelines without invoking specific penalties. If the world leaders can get around that obstacle, Pittsburgh will have been a success.
Scripps Howard News Service