June 30, 2010
Obama's G-20 Summit Setback
At his press conference following the June 25-26 Toronto meeting of the G-20 nations, President Obama claimed that the summit had been a success:
We came to Toronto with three specific goals -- to make sure the global recovery is strong and durable; to continue reforming the financial system; and to address the range of global issues that affect our prosperity and security. And we made progress in each of these areas.
But in an op-ed in the Wall Street Journal a few days before the meeting (Our Agenda for the G-20), Secretary of the Treasury Timothy Geithner and National Economic Council Director Lawrence Summers revealed what the U.S. administration had hoped to accomplish. They wrote: "Stronger growth with solid job creation here in the U.S. depends on an expanding global economy." In other words, they wanted the G-20 to commit to an expansionary economic program so that U.S. exports would grow.
They wrote, "While the U.S. was the major source of demand for the world economic growth before the crisis, global demand must rest on many pillars going forward." What they meant was that the U.S., through its trade deficits, caused its trading partners to grow. They did not mention that the trade deficits caused U.S. industry to wither, caused the loss of millions of industrial jobs, caused U.S. wages to stagnate, and are now slowing the U.S. economic recovery.
Although Geithner, Summers, and the rest of the Obama administration have tried to talk the trade surplus countries into stimulating their imports of our products, it hasn't worked. Instead, the communiqué from the G-20 recites that governments have agreed to at least halve their deficits by 2013, with trade-surplus Japan given a pass to do so rapidly:
Advanced economies have committed to fiscal plans that will a least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016. Recognizing the circumstances of Japan, we welcome the Japanese government's fiscal consolidation plan announced recently with their growth strategy. Those with serious fiscal challenges need to accelerate the pace of consolidation.
This was the agenda of Germany and Japan. The austere budgets agreed upon are quite a contrast to the Keynesian $787-billion U.S. Recovery Act of 2009 and the new $266-billion stimulus plan proposed by the Obama administration this spring. If the Obama administration continues to stimulate U.S. imports of foreign goods, there will be no reciprocation from the rest of the world.
But it's not just Germany and Japan that benefit from this communiqué at our expense. China does, also. Going into the summit, there was a bipartisan coalition of legislators in the U.S. Congress ready to impose tariffs upon Chinese goods in order to force China to end its currency manipulations.
Just before the summit, China allowed the yuan to strengthen by a miniscule amount. That was enough for the G-20. At the request of Chinese President Hu, the communiqué left out all mention of the yuan, instead condemning any new actions that Congress might take before 2014 to counter existing Chinese trade manipulations. Specifically, the communiqué stated:
[W]e renew for a further three years, until the end of 2013, our commitment to refrain from raising barriers or imposing new barriers to investment or trade in goods and services, imposing new export restrictions or implementing World Trade Organization (WTO)-inconsistent measures to stimulate exports, and commit to rectify such measures as they arise.
Meanwhile, here in the United States, our economic recovery appears to have stalled:
- U.S Exports Down. Due to Chinese government actions (tariff and non-tariff barriers) and the dollar strengthening due to the falling euro, overall U.S. exports were down in April.
- Employment Growth Slows. The May employment statistics show little employment growth, except for temporary census workers.
- Declining Consumer Confidence. The June consumer confidence report suggests that U.S. consumer spending is likely to wane.
The Obama administration's strategy of pumping up the economic tire without patching the trade deficit leak has not worked. Its attempt to talk Germany, Japan, and China into balancing trade has not worked. And yet, Obama pledges in the G-20 communiqué that we will not take any action stronger than talk to balance trade before 2014.
From the standpoint of what the U.S. hoped to accomplish, the G-20 meeting has to be considered a total failure, if not a diplomatic and economic disaster. The big winners were the trade-surplus countries, led by Germany and China. At previous summits, they were under pressure to stimulate their imports -- no longer. The big losers were the world's trade-deficit countries, especially the United States, who have no effective leadership whatsoever at this time.
The authors maintain a blog at www.idealtaxes.com and co-authored the 2008 book, Trading Away Our Future: How to Fix Our Government-Driven Trade Deficits and Faulty Tax System Before it's Too Late, published by Ideal Taxes Association.