G-20 Has Not Handled Protectionism

Washington and Seoul stumbled over a trade barrier.

The G-20 Summit in South Korea concluded on a pessimistic note. Concrete measures to combat currency wars have not been developed. The main reason for the failure was disagreements between the U.S. and China. They did not agree on the revaluation of the yuan.

The G-20 meeting, which brought together leaders of major powers and international financial institutions, was designed to develop a strategy to stabilize and accelerate the development of world economy. As noted by the Washington Post, Barack Obama and his advisers hoped to achieve the commitment to keep the surplus or deficit of the balance of payments within an agreed framework from the countries participating in the forum.

First and foremost, this framework implied restrictions on the huge foreign exchange reserves accumulated by China due to the export of relatively cheap goods to America. Washington considers that these trade benefits are obtained thanks to the fact that the yuan is artificially undervalued.

In the opinion of American officials, statistics on the balance of payments, which were published in China in October, confirm their accusations. Accumulation of foreign currency from foreign trade rose this month by another $27 billion

Beijing has not stayed in the red. It likened the White House’s decision to inject $600 billion into its economy to currency manipulation. Thus, the contradiction between these two powers became the behind-the-scenes axis struggle around the final summit communique.

True, during Obama’s meeting with China’s President Hu Jintao, the parties put a good face on a bad game. Statements from American and Chinese representatives after the meeting said that Beijing and Washington will seek a consensus. But what the consensus will be and how general wishes will translate into the language of real action remains unclear.

The South Korean finance minister compared the economic relations between the U.S. and China to two freight trains riding toward each other. The rest of the world has to hope that they do not collide.

Before the summit, the American economic diplomacy suffered another setback. Over a period of time, Washington held talks with Seoul on the abolition of restrictions on trade in beef and cars. The aim was to create a free trade zone between the two countries. However, the agreement was never signed. The only thing left for Obama and South Korean President Lee Myung-Baku was a promise that the pact, which must be approved by lawmakers in both countries, will eventually be concluded.

The Russian delegation, headed by Russian President Dmitry Medvedev, took an active part in the summit. On the sidelines of the conference, he met with President Hu Jintao. The two presidents agreed to strengthen the strategic partnership between Russia and China. Hu pointed out that next year marks 10 years since the signing of the Treaty of Friendship and Cooperation between our countries. As RIA Novosti reports, he suggested using that date for “propaganda and talking about the development of Russian–Chinese relations.”

In an interview with the Reuters news agency, a source in the Russian delegation opened their line in negotiations to formulate a new model of regulation of the global economy. The source said that Moscow was concerned that some countries have taken unilateral action to weaken its currency for the sake of stimulating growth. This is being done without the consent of partners. These steps increase the nervousness among market players and the volatility of major currencies.

Russia does not support the proposal of the U.S. to introduce limits on the deficit or surplus balance of payments. The implementation of this idea can only strengthen the instability of financial markets. Therefore, as suggested by the source, the U.S. decided to withdraw from the agenda of this initiative, which they originally put forward.