Seoul - The world's economies stand on the brink of a trade war as leaders of rich and emerging nations gather in Seoul.
A dispute over whether China and the United States are manipulating their currencies is threatening to resurrect destructive protectionist policies like those that worsened the Great Depression. The biggest fear is that trade barriers will send the global economy back into recession.
Hopes had been high that the Group of 20, which includes wealthy nations like Germany and the US and rising giants like China, could be a forum to forge a lasting global economic recovery. Yet so far, G-20 countries haven't agreed on an agenda, let alone solutions to the problems that divide them.
G-20 leaders were expected to issue a communique detailing results of the summit on Friday.
The delegates have clashed in particular over the value of their currencies. Some countries, like the United States, want China to let the value of its currency, the yuan, rise. That would make Chinese exports costlier abroad and make US imports cheaper for the Chinese to buy. It would shrink the United States' trade deficit with China, which is on track this year to match its 2008 record of $268 billion.
But other countries are irate over the Federal Reserve's plans to pump $600 billion into the sluggish American economy. They see that move as a reckless and selfish scheme to flood markets with dollars, driving down the value of the US currency and giving American exporters an advantage.
For now, the G-20 countries are expected to agree on non-controversial issues, like an anti-corruption initiative. But they're finding no common ground on the most vexing problem: how to address a global economy that's long been nourished by huge US trade deficits with China, Germany and Japan.
Exports to the United States powered those countries' economies for years. But they've also produced enormous trade gaps for the US because Americans consume far more in foreign goods and services than they sell abroad.
President Barack Obama told fellow leaders that the US cannot just keep borrowing lavishly and sending its money overseas. It needs other countries to buy more exports from the United States and elsewhere so Americans can afford to buy other countries' goods, he said.
“The most important thing that the United States can do for the world economy is to grow, because we continue to be the world's largest market and a huge engine for all other countries to grow,” Obama said at a news conference in Seoul.
But Brazil's president, Luiz Inacio Lula da Silva, warned that the world would go “bankrupt” if rich countries reduced their consumption and tried to export their way to prosperity.
“There would be no one to buy,” he told reporters.
A failure to agree on currency and trade in Seoul could intensify countries' efforts to rig their currencies to gain an advantage. A full-blown trade war could lead countries to erect punitive barriers to imports - a replay of what happened in the 1930s. A law the United States passed in 1930 that raised tariffs on imports is widely thought to have deepened the Great Depression by stifling trade.
The US Congress “wants to see some blood ... wants a bit of a spat with China on currency wars”, contends Gregory Chin, a senior fellow at the Center for International Governance Innovation in Canada. The House recently voted to punish China for keeping its currency artificially low.
Government ministers and senior G-20 officials have tried to draft a substantive joint statement to be issued on Friday, summit spokesman Kim Yoon-kyung said.
Leaders held a working dinner on Thursday at Seoul's grand National Museum of Korea, greeted by sentries in royal garb and escorted by children in traditional Korean dress. Outside, a few thousand protesters rallied against the G-20 and the South Korean government. Some scuffled with riot police, but the march from Seoul's main train station was largely peaceful.
“We can put people watching this summit at ease by reaching a concrete agreement that takes a step forward,” South Korean President Lee Myung-bak said.
But Lee was unable to announce a long-stalled free-trade deal with Obama. That impasse between two close allies didn't bode well for any broader compromises.
Besides providing a political boost for both leaders, an agreement could have helped shift the tone for a summit in which nations appeared set to defend their short-term economic interests above all. - Sapa-AP