Obama Presses Hu on Yuan as Trade Imbalances Divide G-20
Obama Presses Hu on Yuan’s Value as Trade Imbalances Divid
Yonhap News via Bloomberg
U.S. President Barack Obama.
U.S. President Barack Obama. Source: Yonhap News via Bloomberg
Nov. 11 (Bloomberg) -- George Magnus, a senior economic adviser at UBS AG, discusses the outlook for this weekend's meeting of leaders from the Group of 20 nations and expectations for China's yuan. Magnus speaks from London with Deirdre Bolton on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Obama Presses Hu on Yuan’s Value as Trade Imbalances Divid
Tim Sloan/AFP/Getty Images
U.S. President Barack Obama, left, shakes hands with Chinese President Hu Jintao during their bilateral meeting at the Grand Hyatt hotel in Seoul.
U.S. President Barack Obama, left, shakes hands with Chinese President Hu Jintao during their bilateral meeting at the Grand Hyatt hotel in Seoul. Photographer: Tim Sloan/AFP/Getty Images
President Barack Obama sat down with Chinese President Hu Jintao to discuss global imbalances with a country whose record $28 billion trade surplus with the U.S. in August heightened complaints it keeps the yuan undervalued.
"As two of the world’s leading economies we have a special obligation to deal with ensuring strong balance and sustained growth," Obama told reporters before starting the talks at the Grand Hyatt in Seoul today. Hu expressed confidence the Group of 20 summit the two leaders are also attending today and tomorrow will produce a "positive outcome."
The Obama-Hu talks may help lessen global disagreements over how to spur economic growth and better balance trade between large exporters led by China, and net importers like the U.S. It is the seventh time Obama has met individually with Hu, highlighting the importance of relations with the world’s fastest-growing major economy.
The G-20 summit comes amid a 10-day trip to Asia in which Obama has emphasized how the region’s role in the global economy benefits the U.S. He already has stopped in India and Indonesia and tomorrow travels to Yokohama, Japan, for the Asia-Pacific Economic Cooperation forum. The president earlier today met with South Korean President Lee Myung Bak and said the two countries hope to forge a free-trade agreement within weeks.
Currency Friction
At the top of Obama’s agenda with Hu are differences over efforts to shrink current-account gaps as a way to ease friction over the value of China’s currency. The U.S. is pushing China to let the yuan appreciate faster to curb the trade surplus.
“The most important thing is whether or not the Chinese are going to support this idea,” said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics. “It wouldn’t solve the currency problem but it’s a way to kind of finesse it.”
China, along with Germany, opposed a suggestion last month by U.S. Treasury Secretary Timothy F. Geithner that the G-20 consider targets for reining in excessive current-account imbalances. To meet the targets, exporting countries like China would likely have to let the value of their currency rise, making their exports more expensive.
Chinese officials have also given a mixed response to the U.S. Federal Reserve’s plan to buy $600 billion of Treasuries to stimulate the economy.
Mixed Response
Vice Finance Minister Wang Jun said Nov. 6 that the policy could contribute “tremendously” to global growth, a day after Chinese Vice Foreign Minister Cui Tiankai warned at a press briefing in Beijing that the Fed’s actions may hurt global confidence.
Talking about trade while in Indonesia yesterday, Obama didn’t specifically mention China when he criticized countries that intervene “significantly in the currency markets to maintain their advantage.”
“Both surplus and deficit countries would benefit if there was a more balanced program in which the surplus countries were focused on internal demand, there was a more market-based approach to the currencies, and the deficit countries thereby were able to export more,” he said.
Obama reiterated that message in a Nov. 9 letter to fellow G-20 leaders. He wrote that stimulating domestic demand in surplus countries “along with market determination of exchange rates that reverses significant undervaluation,” will help bring about a balanced recovery.
Trade Surplus
China is the U.S.’s second largest trading partner, following Canada. It also had a more than $170 billion trade imbalance with the U.S. in the 12 months ended August, according to the Department of Commerce. China yesterday posted a larger- than-forecast $27.1 billion trade surplus in October as exports rose 22.9 percent from a year earlier.
Obama is facing demands from U.S. lawmakers to put more pressure on China over its currency. The yuan today rose to its highest against the dollar since 1993 as the People’s Bank of China continued to ratchet up the currency’s daily trading range ahead of the G-20 summit, which begins later today.
China, which has curbed the yuan’s rise to about 3 percent since a two-year dollar peg was removed in June, has argued that letting its currency rise more quickly could cause social and economic disruption.
U.S. Exports
A stronger Chinese currency would aid Obama’s goal of doubling U.S. exports to about $3.1 trillion by 2015 as a way to combat an unemployment rate has remained at 9.5 percent or higher for more than a year.
Pieter Bottelier, a former World Bank official in China, said focusing on trade gaps may help move the debate by directing the discussion away from the value of China’s currency.
“When you get the emphasis shifted from the nominal exchange rate to the current account balance you give the Chinese more wiggle room,” said Bottelier, now a senior adjunct professor of China Studies at Johns Hopkins University’s Nitze School of Advanced International Studies in Washington. “From the Chinese perspective this gives them a way out.”
To contact the reporters on this story: Nicholas Johnston in Seoul at njohnston3@bloomberg.net;
To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net
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