Obama can't Close Deals at G-20 Summit

SEOUL (By Carol E. Lee and John Maggs, Politico) September 26, 2010 ―  President Barack Obama failed to reach agreement on two international deals to help spur the U.S. economy, unexpected setbacks on an Asia trip that was supposed to emphasize his stature abroad and change the subject from last week’s electoral drubbing.

Obama was unable to achieve a free trade agreement with South Korea, vowing to keep talking to get a better deal for U.S. auto makers. And after meeting with the leaders of Germany and China, he continued to meet resistance from the two countries about reducing their trade surpluses with the U.S. to give a boost to American manufacturing, putting the best face on a compromise that only calls for the goal of lowering them.

“I think that you will see at this summit a broad-based agreement from all countries, including Germany, that we need to ensure balanced and sustainable growth,” Obama said after his meetings, using the kind of optimistic language leaders always use about summits, whatever the conflicts.

On trade with Korea, there were indications that the delay was mostly intended to show that Obama did his best to improve a deal first negotiated in 2007 under President George W. Bush. Obama signaled in June that he viewed the trade pact as a way to improve ties with South Korea and thus strengthen U.S. efforts to maintain peace with North Korea. A failure to reach agreement would badly damage relations with Seoul.

After meeting with South Korean President Lee Myung-Bak, Obama said he believed that Lee is sincere in his desire to complete the negotiations. But, he said, concerns among Americans of a one-way trade relationship with Korea are part of the reason an agreement could not be reached by Thursday.

“If we rush something that then can’t garner popular support, that’s going to be a problem,” Obama said. “We think we can make the case, but we want to make sure that case is air tight.”

Obama said he wants a trade deal to be finalized “in a matter of weeks” and promised it would “create jobs and prosperity” in both the United States and South Korea. At the most recent G-20 summit this past summer in Toronto, Obama said he would push to have an agreement by the time he met with Lee here this week.

Whatever the improvements, the trade pact is likely to be opposed next year by most Democrats in Congress, heeding the expected opposition of labor unions, liberal groups critical of globalization and a small number of U.S. exporters, including Ford Motor Co. Republicans are likely to provide most of the votes, representing a test of Obama’s promise to lead in a bipartisan way under a GOP House and a smaller Democratic majority in the Senate.

With a day left in the Group of 20 summit, Obama continued to press his case for a deal among the 20 richest nations to curb trade surpluses, part of a yearlong effort by the president to induce China to devalue its currency to boost U.S. manufacturing. But the U.S. and Germany engaged in an unusual public dispute about Obama’s proposal that member nations adopt restrictions on the size of their trade surpluses and deficits with one another.

German officials have accused the United States of manipulating the dollar — exactly what China is accused of doing. But at a meeting Thursday, both Obama and German Chancellor Angela Merkel seemed to have talked around their economic dispute and emphasized their close military cooperation.

“I think we have gotten to a good place on the rebalancing agenda in the G-20," said Treasury undersecretary Lael Brainard.

Germany and United States are usually close allies on economic matters, but this week’s dispute isn’t as unusual as it seems, according to Ted Truman, a former Treasury Department and Federal Reserve official. He said that the two have clashed several times over the past few decades over setting currency values, but that these conflicts have mostly played out in private.

The trigger for the dispute was a move last week by the Federal Reserve Board to pump $600 billion into the struggling U.S. economy. Although the Fed claims the action was to boost demand in the United States, it will probably have the effect of lowering the dollar abroad, and Germany attacked the Fed’s decision as currency manipulation. Truman said that Germany was using this as an excuse to derail the U.S. efforts for a deal on trade surpluses, and that China was also eager to weaken Obama’s hand at the talks.

Obama believes increasing U.S. exports is crucial to an economic turnaround, but trade surpluses in other countries represent lost exports and lower prices in America for hard-hit U.S. manufacturers. Reducing those surpluses will help Obama meet a goal of doubling exports by 2015, and perhaps boost his popularity.

Obama also met with Chinese President Hu Jintao for an hour and 20 minutes Thursday, and White House officials said that most of their session was focused on China’s currency. Unlike the United States and most economic powers, which let markets set currency values, China controls the value of its currency and keeps it low to make its products cheaper and more competitive abroad.

Obama faces legal and political pressure to make more progress with the Chinese on the currency issue. Under a law championed by Democrats that calls for trade retaliation against countries that manipulate their currencies, Obama faces a decision in the next month or so about whether to continue a waiver for China. Failure to make progress will bring more calls from U.S. manufacturers and labor unions for action.

Nick Lardy, an expert on China’s economy at the Peterson Institute for International Economics, said that China is actually moving slowly toward an agreement to reduce its trade surplus, in keeping with its own plans to invest more in its domestic economy.

Obama left for Asia three days after a Republican landslide that won control of the House and added to the GOP minority in the Senate. Presidents usually make postelection foreign trips, either enjoying a victory lap or leaving behind the headaches of a bad loss. In this case, Obama’s problems seemed to come with him. The president faces doubts at home about his ability to lead a politically divided government, and the bumps he faced on this trip also reflected doubts from other governments that the president can achieve aims such as the international deal to curb trade surpluses.