Larry Summers, the ringleader of President Obama’s economic team, sat down for an interview with the Financial Times late last week.
His remark about the economy – “I don’t think the worst is over” - got the most attention.
But he made some other remarks that have bigger and more long-term implications. He essentially backed into the trade imbalance issue by talking about Obama’s plans for “a new American economy” that will be “more export-oriented” and “less consumption-oriented.”
That brings up what Obama said back in April during the G20 summit, when he told global leaders that the rest of the world would have to stop counting on the U.S. to be a “voracious consumer market” for their exports.
But FT’s Chrystia Freeland astutely pointed out that this raises huge challenges.
Foreign policy watchers have tended to focus on the security issues this administration faces – the wars in Iraq and Afghanistan, the challenges of Iran and North Korea’s nuclear ambitions. But Obama’s most important international assignment may turn out to be coaxing the rest of the world into accommodating this reshaping of the US economy.
As Summers puts it, “The global imbalances have to add up to zero and so, if the US is going to be less the consumer importer of last resort, then other countries are going to need to be in different positions as well.”
Summers appears to be echoing what FT’s Martin Wolf said back in March at the New America Foundation, when he argued that China and Germany needed to move away from their huge trade surpluses and toward balance to offset the enormous budget deficits being run by most of the major developed economies (U.S., UK, and much of Europe).
I asked Obama and German Chancellor Merkel about this topic back in April, during Obama’s trip to Germany, and you can read my question and their answers here.
— Jon Ward, White House reporter, The Washington Times