President Obama’s trip around the globe via Asia has left contrails of doubt floating over the global economic system. The biggest doubts? Can the US continue as the world’s engine for growth, as the lead architect for free trade, and as the grand protector of financial stability.
From India to Indonesia to South Korea to Japan, Mr. Obama’s nine-day tour revealed just how much the US has turned inward after the Great Recession of 2007-2009 that left stubbornly high unemployment.
At these summits, the president seemed to plead for sympathy as he tries to right the American economy – even if that means US actions create knock-on effects for the rest of the world.
For one, Obama declares that the US economy – and the world – can no longer rely on high consumption of goods by Americans based on easy credit. The US will instead focus on boosting its exports as the main creator of jobs.
On trade, he showed an eagerness to give the US more advantages. He demanded that South Korea renegotiate a pact the two countries had already signed in hopes of further boosting car and beef exports. (He failed.)
And he defended the Federal Reserve’s decision to print $600 billion in new dollars and pump them into the economy – a move more akin to a third-world country. Such a step risks global inflation and makes it difficult for other countries to export goods.
“The Fed’s mandate, my mandate, is to grow our economy,” Obama said. Only then, he added, can the US help the world grow, too.
His words echo those of China’s prime minister, Wen Jiabao, who recently pleaded for understanding as China artificially keeps its currency strong to boost exports. Otherwise, the prime minister warned, China would spiral into social chaos and destabilize the world.
The US, like many countries, faces domestic demands to fix its economy at the expense of the global system. It was those same sorts of pressure during the Great Depression that led world leaders to set up rules and financial institutions in 1944 to govern an open global economy after World War II.
That system, known as Bretton Woods, largely succeeded. But it relied on US dominance and leadership, especially in keeping the dollar as a stable currency for trade. But as other economies have grown and the US has become less economically reliable, the world is in search of a new order – and perhaps alternatives to the US dollar. (The World Bank president suggests a return to gold as one currency standard.)
Recent summits, such as the Group of 20 meeting in Seoul this past week, have tried to shape new rules that reflect a more multipolar world economy. But they still differ on what is “fair” in rules for finance and trade.
There is a race to come up with a new system before more countries – especially the US – turn to measures that help their own economies but harm others, such as trade protectionism and currency manipulation.
Obama, after taking a shellacking in the midterm elections and eyeing reelection in 2012, may be tempted to pursue a strong America-first economic policy.
His attempt to set up just one new rule – a cap on each country’s surplus earnings from exports – failed at the Seoul summit. So, too, did his request, once again, for China to let its currency float in value on world markets.
These setbacks may compel Obama to take more actions that benefit the US but at a cost to forming a new economic order. Also, his domestic moves to make the US more competitive – his drive to improve high-tech research, higher education, and infrastructure – may not produce jobs quickly enough to stave off political demands to protect the US economy.
So far, however, the president appears to be hoping he can shape that new order.
“Instead of hitting home runs sometimes we’re gonna hit singles,” Obama said of the Seoul summit’s sketchy results in forging vague agreements on new economic rules. “But they’re really important singles.”
The US must keep that sort of patience in finding a world consensus even as it puts it own economic house back in shape.