SEOUL, Nov 12 – G20 leaders vowed Friday to avoid tit-for-tat currency devaluations, but China\’s strong objections to any brakes on its export machine undermined a US push to redress skewed global trade.
In a summit declaration, the leaders of the world\’s biggest rich and emerging economies agreed to pursue "indicative guidelines" to reorient trade between surplus and deficit nations.
Thanks to China\’s resistance to binding trade targets, that was far less ambitious than sought by the United States as the world\’s richest power nurses a hangover from its worst recession since the 1930s.
Leaders including the US and Chinese presidents also warned that "risks remain" to the global economy and said that "uncoordinated policy actions will only lead to worse outcomes for all".
Their statement pledged moves "toward more market-determined exchange rate systems, enhancing exchange rate flexibility to reflect underlying economic fundamentals, and refraining from competitive devaluation of currencies".
G20 finance ministers were tasked with crafting the non-binding guidelines "and pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels".
The consensus document threatens to be interpreted by financial markets as toothless, shorn of US proposals to limit surpluses and deficits in national current accounts to four percent of gross domestic product.
Chinese President Hu Jintao had presented his own counter-proposals in Seoul, calling on the United States to adopt "responsible policies" and maintain a stable dollar.
Hu, who presides over the world\’s second-largest economy and its largest exporter, demanded global resistance to trade barriers as he painted a bleak picture of the economic outlook.
"The international financial markets are volatile, the fluctuation in the major currencies is large, prices of commodities are high, and there is a clear rise in protectionism," he said.
President Barack Obama, having suffered an economy-linked drubbing in US elections last week, says there should be no controversy about fixing imbalances "that helped to contribute to the crisis that we just went through".
But controversy was rife in the G20 after the Federal Reserve instituted a 600-billion-dollar attempt to reflate the US economy, a radical monetary step that foreign critics say will trigger tit-for-tat currency devaluations.
Chinese officials sought to throw the onus back on the United States by arguing that Beijing has an "unswerving" commitment to reform its much-criticised currency regime, but needs stability in the world economy.
The US plan to curtail trade imbalances was a back-door way of forcing China to realign its currency, which critics say is kept deliberately cheap to support Chinese exporters.
But the proposal ran into trouble not just from China but from an array of nations including Germany, Europe\’s export champion, which insists its own trading prowess has nothing to do with any currency chicanery.
"To set political limits on trade surpluses and deficits is neither economically justified nor politically appropriate," German Chancellor Angela Merkel told a G20 business summit.
The United States, accused itself of deliberately depressing the dollar to trade its way back to prosperity, vied to build bridges in Seoul.
A senior US official said Washington was "very encouraged" by China\’s actions, which have led to a slow rise in the yuan since June.
Confronting US critics head-on, Treasury Secretary Timothy Geithner said the United States would "never" manipulate the dollar and hit back at a surprise attack on Washington\’s economic approach from former Federal Reserve chairman Alan Greenspan.
But divisions in Seoul were in plain view with China\’s growing assertiveness in a variety of international forums, including the failed Copenhagen climate summit at the end of last year, again on display, sources said.