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The Group of 20 industrial and developing nations met this week in Seoul, South Korea for the G-20 annual summit. The G-20’s efforts to coordinate economic and trade policies were complicated by the fact that some members are running large current account deficits, while others are running sizeable current account surpluses. Some nations are worried about deflation, while others face rising inflation. The value of the U.S. dollar is falling, while the Japanese yen, the British pound, and the euro have gained against a stable Chinese yuan.

The lack of significant progress at the summit suggests that the United States seems to be wielding less clout on the global stage. The results of the recent U.S. elections suggest that domestic support for President Barack Obama and his programs seem to be waning, and this may be impacting perceptions of Mr. Obama in other nations. Mr. Obama failed to finalize details of a free-trade agreement with South Korea before the self-imposed target of the start of the G-20 meetings. The U.S. economic recovery is anemic, while Brazil, China, and India are recording solid economic growth. Mr. Obama faced widespread criticism about the Federal Reserve’s decision to inject $600 billion into the U.S. economy by buying U.S. government bonds over the next eight months in an attempt to drive down interest rates. Many countries have concerns about the Fed’s action, which is likely to drive down the value of the dollar, drive up the value of other currencies, and hurt the export sectors of other countries. Nations want the United States, as a major reserve-currency issuer, to consider the impact of its monetary policies not only on its own national economy, but also the possible impact of these policies on the global economy.

The summit concluded with little progress on the two most contentious issues of exchange rate policies and trade imbalances. The members provided a communiqué indicating that they will continue over the next year to make progress toward more balanced trade and market-determined exchange rates, but no specific numerical targets were announced. The United States had proposed that countries should limit their current account surplus or deficit to no more than four percent of the nation’s GDP by 2015. China and Germany were reluctant to agree to any proposal which quantified limits on current account surpluses and deficits. The delay in defining targets for external imbalances may contribute to the simmering trade and currency wars impacting the global economy. The countries did make progress on developing a framework for regulating the world’s financial system to avoid taxpayer bailouts of banks and called 2011 a “critical window of opportunity” for progress on the Doha round of WTO negotiations.

QUESTIONS FOR DISCUSSION:

  1. Evaluate the extent to which the G-20 annual summit in Seoul can be considered a success. What challenges will be created by waiting a year for the next meeting before holding high-level talks to address perhaps the most contentious issues facing the G-20—exchange rate policies and trade imbalances?
  2. Discuss how the fact that President Obama failed to reach a self-imposed deadline for finalizing a trade agreement with South Korea will impact his success with his domestic agenda and his goals for the broader global economy.
  3. The United States faces widespread criticism for the “quantitative easing” policies of the Federal Reserve and the fact that the Fed is injecting another $600 billion into the U.S. economy. Compare and contrast the monetary policies of the United States and of China with its heavily-managed currency. Is this criticism of the United States deserved?

SOURCE: Weisman, J., & Paletta, D. (2010, November 12). U.S. wields less clout at meeting. Wall Street Journal, p. A8. (Retrievable online at http://online.wsj.com/article/SB10001424052748703848204575608024073731214.html)

RELATED ARTICLE: G-20 Delays Imbalance Deal. (Retrievable online at http://online.wsj.com/article/SB10001424052748703848204575609551819168026.html)

Related video clip available at:
http://www.reuters.com/news/video?videoId=164091319&feedType=VideoRSS&feedName=Business&videoChannel=5&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FUSVideoBusiness+%28Video+%2F+US+%2F+Business%29&utm_content=Google+Feedfetcher

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