Obama Calls For International Cooperation On Economic Recovery

On the eve of a meeting of the leaders of the world’s top 20 economies, known as the G20, President
Barack Obama on June 18 wrote a letter to participants calling on them to make a renewed commitment
to work together to continue and strengthen the economic recovery.

While calling for more stringent capital and liquidity requirements, stronger oversight of
derivatives markets, more transparency and disclosure, he also mentioned the need for revisions in
international trade. The G20 members account for 80 percent of world trade.

“Our ability to achieve a durable global recovery depends on our ability to achieve a pattern
of global demand growth that avoids the imbalances of the past,” he said. Without mentioning China
by name, Obama said: “We have agreed that countries with external surpluses would need to
strengthen domestic sources of growth. I also want to underscore that market determined exchange
rates are essential to global vitality. The signals that flexible exchange rates send are necessary
to support a strong and balanced global economy.”

On June 19, the People’s Bank of China announced it plans to move forward with reforms of the
renminbi or yuan exchange rate, but the bank did not say how much of a modification it expected or
when it is likely to take effect. President Obama immediately praised the action as a “constructive
step that can help safeguard the recovery and contribute to a more balanced global economy.”
However, the action is not likely to satisfy congressional and industry critics of China’s exchange
rate policies who say the depressed yuan amounts to a major unfair subsidy to Chinese exports that
is costing U.S. jobs. Sen. Charles Schumer, D-N.Y., who is authoring legislation to impose stiff
tariffs on Chinese imports if China does not modify its currency exchange rate, described the
Chinese action as “a vague and a limited statement of intentions.”

While the Obama administration has been concerned about the U.S./China trade deficit and the
refusal of China to let the value of its currency float, it has been reluctant to formally brand
China a currency manipulator and pave the way for retaliatory actions under U.S. trade laws.
Administration officials also have urged Congress to avoid legislation that would do the same

Back in April, Treasury Secretary Timothy Geithner delayed releasing a report on
international currency policies because he felt there would be “a series of very important
high-level meetings that will be critical to bringing about policies that will help create a
stronger, more sustainable and more balanced global economy.”  He cited as examples a
Strategic Economic Dialogue with China in May and the July 26-27 G20 meeting in Toronto. 

China’s announcement just prior to the G20 meetings is seen as an effort to lessen the
pressure some of the G20 members have been putting on China to let its currency float.

June 22, 2010