German Chancellor Angela Merkel on Thursday rejected a U.S. proposal to try to cap global trade imbalances while the world’s other export powerhouse, China, shunned U.S. calls for speedier economic reform.
In one-on-one meetings with the heads of the U.S.’s biggest nemeses on trade issues at a Group of 20 economic powers meeting in Seoul, President Obama pressed his case for trying to curb ballooning trade deficits and surpluses to help prevent another financial collapse like the one that toppled the world economy in 2008.
But Mrs. Merkel shut the door on any concrete commitment from Europe’s export engine to limit its large trade surpluses to 4 percent of economic output — a proposal floated by the U.S. in behind-the-scenes negotiations.
“To set political limits on trade surpluses and deficits is neither economically justified nor politically appropriate,” the German leader told a G-20 business summit.
At her meeting with Mr. Obama, the German leader repeated concerns about the Federal Reserve’s controversial decision last week to buy $900 billion of U.S. Treasury debt in the next six months. European officials worry the move will provoke a round of inflation and destructive currency devaluations.
But White House aides said the president pointed out that the U.S. dollar actually is benefiting and getting stronger because of a renewed outbreak of the European debt crisis this week. Investors on Thursday forced Ireland to pay unprecedented interest rates of near 10 percent on its bonds because of growing fears of default.
The renewed European crisis is reviving a “flight to safety” to the U.S. dollar and Treasury bonds, the president pointed out. He also repeated U.S. concerns that Germany’s attempts to attach more stringent conditions to loans to countries like Ireland that may need a bailout may be “spooking markets.”
Mr. Hu repeated Beijing’s strong commitment to a more flexible exchange-rate regime and noted the progress achieved thus far. China has allowed its currency, the yuan, to rise by nearly 3 percent since June under heavy pressure from the U.S. and other G-20 nations.
Outside the meeting, Chinese officials were more blunt in rejecting U.S. calls for faster reform, suggesting that the burgeoning U.S. trade deficit with China this year is primarily the result of excessive spending on imports by U.S. consumers and businesses.
“If you’re sick yourself, don’t ask others to take medicine,” Chinese Commerce Ministry spokesman Yu Jianhua said. The Commerce Ministry often takes the side of Chinese exporters, who are strongly resisting any major change in Beijing’s policy of loosely linking the yuan to the dollar.
China is paying a rising price these days for the currency regime, as reports show a noticeable pickup in Chinese inflation partly as a result of the falling dollar, which makes key commodities like oil and copper more expensive for Chinese producers and consumers.
Lael Brainard, U.S. Treasury Department undersecretary for international affairs, said the sharp differences of opinion that surfaced this week reflect the fact that countries are no longer operating in an emergency mode, as they were a year ago when coordinated action was seen as urgently needed.
“I think we have gotten to a good place on the rebalancing agenda,” she said. “We’re now at a stage where the crisis phase and the immediate crisis-response stage has passed and different economies are moving at different paces.”
But in a blow to U.S. hopes for a breakthrough on trade in Seoul, negotiators said they would put off efforts to finish forging a free-trade agreement with South Korea — a goal that had seemed within reach before the summit.