- Though the G-20 summit isn't here yet, politicians are getting a head start.
- The arguments center mainly on ill-conceived and outdated views on trade and exchange rates.
- For all the bickering, the US and South Korea are now trying to revive a stalled free trade agreement between them.
- Free trade does more good than bad overall, and overwhelmingly, the world seems to agree—countries have signed numerous free trade agreements in 2010.
The G-20 summit in Seoul, South Korea doesn't begin until Wednesday, but heated debate—focusing mainly on trade—is already well underway. The US is accusing China and others of manipulating exchange rates to favor exports. After letting Treasury Secretary Geithner do most of the (ill-conceived) talking so far, President Obama joined the fray, calling exporters' trade surpluses evidence of a global imbalance. Most of the G-20, meanwhile, beg to differ. According to them, the US Fed's QE2 amounts to the largest bout of currency manipulation in the world. (The Fed is primarily focused on domestic matters, but holding rates low relative to other countries and increasing the supply of dollars weakens the currency.)
On the surface, all this bickering seems a firm step in the wrong direction. There's no golden global equilibrium governments can define, let alone realistically attain. Markets are always in the equilibrium-finding process, but they never actually balance. Governments seeking equilibrium tend to worsen imbalances by immovably favoring a politically popular outcome over all others. The better, and time-tested, solution is to reduce impediments and let the global market freely adjust to prevailing conditions.
But under the rhetoric, the G-20 summit may be a touch more nuanced and interesting than usual. Even as accusations fly, US officials are beating a quick retreat on an earlier proposal to limit surpluses—a clear nonstarter with the rest of the G-20 and unwise to boot. Even better, the US (a laggard of late) appears determined to use the summit to revive a stalled free trade agreement (FTA) with South Korea. The FTA has been in limbo for three years, thanks to disagreement over automobile provisions demanded by the US and concern about tainted beef by South Korea. That the two are back at the table is a welcome sign the US FTA freeze may be thawing. (Other US FTAs on the back burner include agreements with Colombia and Panama.) If signed, the South Korea/US FTA would be the largest since NAFTA and join the throng of FTAs in 2010 (detailed below):
Source: Global Insight
*Mercosur is a South American trade organization including Brazil, Argentina, Paraguay, and Uruguay. Bolivia, Chile, Peru, Colombia, and Ecuador are associate members.
**ASEAN is the Association of Southeast Asian Nations, which includes Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Myanmar, Cambodia, Laos, and Vietnam.
The global economy isn't likely to be completely free of obstructions any time soon. But the current trend favoring free trade is a movement in the right direction and far preferable to the much bickered over alternative. Politicians around the globe, for all their grandstanding, appear to be on the right track in 2010. And with a little luck and good old common sense, the US may soon re-join the party.